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Exhibit 10.3

EMPLOYMENT AGREEMENT
 
This EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 6th
day of August, 2009, by and between Allion Healthcare, Inc., a corporation with
its headquarters located at 1660 Walt Whitman Road, Melville, New York 11747
(the “Employer”), and Robert E. Fleckenstein, R.Ph. (the “Executive”).
 
WHEREAS, the Employer and the Executive previously entered into an agreement
providing for the Executive’s employment by the Employer, which expired July 20,
2009;

WHEREAS, the Employer and the Executive desire to enter into a new agreement to
reflect the Executive’s duties and responsibilities and to provide for the
Executive’s employment by the Employer upon the terms and conditions set forth
herein;

WHEREAS, the Employer and the Executive desire for this Agreement to be
effective as of July 20, 2009 (the “Effective Date”), upon the expiration of the
previous employment agreement; and
 
WHEREAS, the Executive has agreed to certain confidentiality, non-competition
and non-solicitation covenants contained hereunder, in consideration of the
benefits provided to the Executive under this Agreement;
 
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and intending to be legally bound, the Employer and the Executive
agree as follows:
 
1.           Employment.  The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
 
2.           Capacity.  The Executive shall serve the Employer as its Vice
President, Pharmacy Operations. The Executive shall also serve the Employer in
such other or additional offices as the Executive may reasonably be requested to
serve by the Board of Directors of the Employer (the “Board of Directors”). In
such capacity or capacities, the Executive shall perform such services and
duties in connection with the business, affairs and operations of the Employer,
consistent with such positions, as may be assigned or delegated to the Executive
from time to time by or under the authority of the Board of Directors.
 
3.           Term.  Subject to the provisions of Section 6, the term of
employment pursuant to this Agreement (the “Term”) shall commence on the
Effective Date and terminate on the second anniversary of the Effective
Date.  Expiration of the Term shall not constitute termination of Executive's
employment during the Term for purposes of termination benefits under Section 6
of this Agreement.
 
4.           Compensation and Benefits.  The compensation and benefits payable
to the Executive during the Term shall be as follows:
 
(a)           Salary.  For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary (“Salary”) at the
annual rate of one hundred eighty thousand dollars ($180,000.00) per annum, less
normal withholdings, effective as of the Effective Date, and subject to
increases from time to time in the sole discretion of the Compensation Committee
of the Board of Directors (the “Compensation Committee”). Salary shall be
payable in periodic installments in accordance with the Employer’s usual
practice for its senior executives.

 
 

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(b)           Bonus.  The Executive may be awarded performance bonuses on an
annual basis, commencing with a bonus that may be awarded for the 2009 calendar
year, as determined by the Board of Directors or the Compensation Committee in
the sole discretion of the Board of Directors or Compensation Committee,
respectively; provided, however, that the bonus for any such year shall not
exceed forty percent (40%) of Salary for such year.  The performance bonus, if
any, shall be paid to the Executive within thirty (30) days after the Board of
Directors or the Compensation Committee determines whether and to what extent
performance goals were achieved, but no later than March 15 next following the
end of the calendar year for which the performance bonus, if any, was earned. 

(c)           Stock Options.  The Executive has previously been issued, and may
be issued in the future, options to purchase shares of common stock of the
Employer in accordance with the Employer’s stock option plan and the Executive’s
stock option agreement thereunder. All options issued to the Executive, which
have not been vested as of the time any Change in Control (as defined in Section
7(c)) occurs, shall automatically vest upon such occurrence.
 
(d)           Regular Benefits.  The Executive shall also be eligible to
participate in any employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans, vacation plans,
expense reimbursement plans and other benefit plans which the Employer may from
time to time have in effect for all or most of its senior executives. Such
participation shall be subject to the terms of the applicable plan documents,
generally applicable policies of the Employer, applicable law and the discretion
of the Board of Directors, the Compensation Committee or any administrative or
other committee provided for in or contemplated by any such plan. Nothing
contained in this Agreement shall be construed to create any obligation on the
part of the Employer to establish any such plan or to maintain the effectiveness
of any such plan which may be in effect from time to time.
 
(e)           Automobile.  During the Term, the Employer shall provide the
Executive with an automobile allowance of $800 per month to compensate the
Executive for expenses related to the use of an automobile and reasonable
business-related expenses associated with such automobile and its maintenance
and operation.

(f)           Taxation of Payment and Benefits.  The Employer shall undertake to
make deductions, withholdings and tax reports with respect to payments and
benefits under this Agreement to the extent that it reasonably and in good faith
believes that it is required to make such deductions, withholdings and tax
reports. Payments under this Agreement shall be in amounts net of any such
deductions or withholdings. Nothing in this Agreement shall be construed to
require the Employer to make any payments to compensate the Executive for any
adverse tax effect associated with any payments or benefits or for any deduction
or withholding from any payment or benefit.
 
(g)           Exclusivity of Salary and Benefits.  The Executive shall not be
entitled to any payments or benefits other than those provided under this
Agreement, unless otherwise approved by the Board of Directors.

5.           Extent of Service.  During the Term, the Executive shall, subject
to the direction and supervision of the Board of Directors, devote the
Executive’s full business time, best efforts and business judgment, skill and
knowledge to the advancement of the Employer’s interests and to the discharge of
the Executive’s duties and responsibilities under this Agreement. The Executive
shall not engage in any other business activity, except as may be approved by
the Board of Directors; provided that nothing in this Agreement shall be
construed as preventing the Executive from (a) investing the Executive’s assets
in any company or other entity in a manner not prohibited by Section 8(d), or
(b) engaging in religious, charitable or other community or non-profit
activities that, in the case of (a) or (b) above, do not in any way impair the
Executive’s ability to fulfill the Executive’s duties and responsibilities under
this Agreement.

 
 

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6.           Termination and Termination Benefits.  Notwithstanding any other
provision of this Agreement, (i) the Employer may terminate the Executive’s
employment hereunder at any time with or without Cause (as defined in Section
7(a)) at its election; (ii) the Executive may terminate the Executive’s
employment hereunder at any time with or without Good Reason (as defined in
Section 7(b)) at the Executive’s election; (iii) Executive’s employment
hereunder shall automatically terminate upon the Executive’s death; and (iv) the
Executive’s employment shall terminate upon the Executive’s disability as
provided in Section 6(c). The date of termination of the Executive’s employment
hereunder, whether upon scheduled termination of the Term, termination by either
the Employer or the Executive as provided in this Agreement, or by reason of the
Executive’s death or disability, is the “Termination Date.” Any termination of
employment hereunder shall be effective upon the date of scheduled termination
of the Term, the date of receipt by the non-terminating party of a notice of
termination from the terminating party with or without Cause (in the case of a
termination by the Employer) or with or without Good Reason (in the case of a
termination by the Executive), the date of death, or after the onset of
disability as provided in Section 6(c), as the case may be; provided that, in
the case of a termination by the Employer, the Employer may specify in the
notice of termination a later termination date (which date shall be no later
than thirty (30) days after the date of such notice of termination). The amounts
payable to the Executive and other benefits provided to the Executive under this
Section 6 shall be referred to as “Termination Benefits.” Payment of the
Termination Benefits under this Section 6 shall be subject to Section 20 of this
Agreement.
 
(a)           Termination by the Employer for Cause, by the Executive without
Good Reason or Death.  If, during the Term, (i) the Employer terminates the
Executive’s employment for Cause or (ii) the Executive terminates his employment
with the Employer without Good Reason, or upon the Executive’s death, the
Executive shall be entitled to:
 
(i) accrued but unpaid Salary through the Termination Date;
 
(ii) cash in lieu of any accrued but unused vacation through the Termination
Date (the payments provided in (i) and (ii) above collectively referred to as
the “Accrued Obligations”); and
 
(iii) any benefits accrued or payable to the Executive under the Employer’s
benefit plans (in accordance with the terms of such benefit plans and subject to
Section 20 hereof) (the “Other Benefits”).
 
The Accrued Obligations shall be paid to the Executive in a lump sum in cash
within five (5) days after the Termination Date.  Upon payment or provision of
the Accrued Obligations and the Other Benefits, if any, the Employer shall have
no further obligations to the Executive under this Agreement.
 
(b)           Termination by the Executive for Good Reason or by the Employer
Without Cause.  If, during the Term, (i) the Executive terminates his employment
with the Employer for Good Reason within a period of ninety (90) days after the
occurrence of an uncured event of Good Reason, or (ii) the Employer terminates
the Executive’s employment with the Employer without Cause, then the Executive
shall be entitled to:

(i) the Accrued Obligations, payable in a lump sum in cash, within five (5) days
after the Termination Date;
 
(ii) an amount equal to the Salary, at the rate in effect on the Termination
Date, that would have been paid to the Executive as if there had been no
termination described in this Section 6(b) for a period of one (1) year after
the Termination Date, including a termination by the Executive for Good Reason
or by the Employer without Cause within twelve (12) months following a Change in
Control.  Such severance payment shall be payable in a lump sum in cash within
five (5) days following the Termination Date;

 
 

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(iii) continuation of group health plan benefits to the extent authorized by and
consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”),with the
cost of the regular premium for such benefits shared in the same relative
proportion by the Employer and the Executive as in effect on the Termination
Date, provided that the Executive’s entitlements under this clause (iii) shall
terminate as of the earlier of (x) one (1) year from the Termination Date or (y)
the date of commencement of eligibility for health insurance pursuant to other
employment or self-employment;

(iv) accelerated vesting of all of the Executive’s options to purchase shares of
common stock of the Employer referred to in Section 4(c); and

(v) the timely payment or provision of the Other Benefits, if any.
 
Notwithstanding the foregoing, nothing in this Section 6(b) shall be construed
to affect the Executive’s right to receive COBRA continuation entirely at the
Executive’s own cost to the extent that the Executive may continue to be
entitled to COBRA continuation after the Executive’s right to cost sharing under
Section 6(b)(iii) ceases. The Executive shall be obligated to give prompt notice
of the date of commencement of any employment or self-employment and shall
respond promptly to any reasonable inquiries concerning any employment or
self-employment in which the Executive engages during the Termination Benefits
Period.
 
(c)           Disability.  If the Executive shall be physically or mentally
disabled so as to be unable to perform substantially all of the essential
functions of the Executive’s then existing position or positions under this
Agreement with or without reasonable accommodation, the Board of Directors may
remove the Executive from any responsibilities and/or reassign the Executive to
another position with the Employer for the remainder of the Term or during the
period of such disability. Notwithstanding any such removal or reassignment, the
Executive shall continue to be employed by the Employer and shall receive a
payment equal to the lesser of (i) the Salary that he would have received
through the date that is six (6) months after the onset of the disability, or
(ii) the Salary that he would have received through the termination of the then
Term (less any disability pay or sick pay benefits to which the Executive may be
entitled under the Employer’s plans and policies), payable in a lump sum in cash
within five (5) days following the date on which the Executive is determined to
be disabled.  In addition, Executive shall be entitled to any annual bonus that
is earned within the period described in the foregoing sentence, which bonus
shall be payable at the normal time for payment of bonuses, as prescribed in
Section 4(b).  Executive also shall continue to receive other benefits under
Section 4 of this Agreement (except to the extent that the Executive may be
ineligible for one or more such benefits under applicable plan terms) until the
earlier of (i) the date that is six (6) months after the onset of the disability
and (ii) the termination of the Term, at which time this Agreement shall
terminate and the Executive shall be entitled only to the Accrued Obligations,
and the Employer shall have no further obligations to the Executive under this
Agreement.  If any question shall arise as to whether the Executive is disabled
so as to be unable to perform substantially all of the essential functions of
the Executive’s then existing position or positions with or without reasonable
accommodation, the Executive may, and at the request of the Employer shall,
submit to the Employer a certification in reasonable detail by a physician
selected by the Employer to whom the Executive or the Executive’s guardian has
no reasonable objection as to whether the Executive is so disabled or how long
such disability is expected to continue, and such certification shall for the
purposes of this Agreement be conclusive of the issue. The Executive shall
cooperate with any reasonable request of the physician in connection with such
certification. If such question shall arise and the Executive shall fail to
submit such certification, the Employer’s determination of such issue shall be
binding on the Executive. Nothing in this Section 6(c) shall be construed to
waive the Executive’s rights, if any, under existing law including, without
limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq.
and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

 
 

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7.           Definitions.  For purposes of this Agreement, the following terms
shall have the following meanings:

(a)           “Cause” shall mean (i) the failure of the Executive to perform the
Executive’s duties for the Employer in accordance with Section 2 above,
including without limitation, the Executive’s failure to follow the directives
of the Board of Directors, consistent with Section 2, or any other material
breach by the Executive of this Agreement, provided that the Employer gives
notice of such breach to the Executive in writing and such breach remains
uncured for thirty (30) days following the date such notice is given; (ii) the
Executive’s breach of any obligation of the Executive under Section 8; (iii) any
act by the Executive of fraud or theft; (iv) a conviction by a court of
competent jurisdiction that the Executive is guilty of a felony, or a
misdemeanor involving moral turpitude, deceit, dishonesty or fraud, or a plea of
nolo contendere thereto; or (v) engaging in reckless behavior (the failure to
use even the slightest amount of care) or willful misconduct by the Executive
with respect to the Employer or its business or assets that has had or is
reasonably likely to have a material adverse effect on the Employer or its
business or assets. No act or omission by the Executive reasonably believed to
be in or not adverse to the interests of the Employer shall constitute Cause.

(b)           “Good Reason” shall mean, without Executive’s written consent:

(i) Any material diminution in the nature or scope of the authorities,
responsibilities or duties of the Executive;

(ii) Any material reduction in the amount of the Executive’s Salary;

(iii) Any material breach by the Employer or its successors of any other
provision of this Agreement, including without limitation the obligation to
provide the compensation and benefits as set forth in Section 4 of this
Agreement; or

(iv) A material change in the geographic location of the Executive’s principal
place of employment with the Employer, and for purposes of this Agreement, a
change of 35 miles or more from the current location will be considered
material.

Notwithstanding the foregoing, an event described in clauses (i) through (iv)
above shall constitute Good Reason only if (i) the Executive gives written
notice thereof to the Employer within thirty (30) days after such event occurs,
and (ii) the Employer fails to cure such event within thirty (30) days after
receipt from the Executive of such notice.  If the Employer fails to cure such
event of Good Reason, the Executive must resign within ninety (90) days of the
occurrence of the Good Reason event in order to be entitled to the Termination
Benefits of Section 6(b) of this Agreement.

(c)         “Change in Control” shall mean the occurrence of one or more of the
following events:
 
(i) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes a
“beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act) (other than the Employer, any trustee or other fiduciary holding
securities under an employee benefit plan of the Employer, or any corporation
owned, directly or indirectly, by the stockholders of the Employer, in
substantially the same proportions as their ownership of stock of the Employer),
directly or indirectly, of securities of the Employer, representing fifty
percent (50%) or more of the combined voting power of the Employer’s then
outstanding securities; or

(ii) persons who, as of the Effective Date, constituted the Employer’s Board of
Directors (the “Incumbent Board”) cease for any reason including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board of Directors,
provided that any person becoming a director of the Employer subsequent to the
Effective Date whose election was approved by at least a majority of the
directors then comprising the Incumbent Board shall, for purposes of this
Section 7(c), be considered a member of the Incumbent Board; or

 
 

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(iii) the stockholders of the Employer approve a merger or consolidation of the
Employer with any other corporation or other entity, other than (1) a merger or
consolidation which would result in the voting securities of the Employer
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Employer or such surviving entity outstanding
immediately after such merger or consolidation or (2) a merger or consolidation
effected to implement a recapitalization of the Employer (or similar
transaction) in which no “person” (as hereinabove defined) acquires more than
fifty percent (50%) of the combined voting power of the Employer’s then
outstanding securities; or
 
(iv) the stockholders of the Employer approve a plan of complete liquidation of
the Employer or an agreement for the sale or disposition by the Employer of all
or substantially all of the Employer’s assets.
 
8.           Confidential Information, Noncompetition and Cooperation.

(a)           Confidential Information.  As used in this Agreement,
“Confidential Information” means nonpublic (not as a result of the Executive’s
wrongful disclosure) information belonging to the Employer which is of value to
the Employer in the course of conducting its business and the disclosure of
which could result in a competitive or other disadvantage to the Employer.
Confidential Information includes, without limitation, financial information,
reports, and forecasts; inventions, improvements and other intellectual
property, trade secrets, know-how, designs, processes or formulae, software,
market or sales information or plans, customer lists; and business plans,
prospects, strategies and opportunities (such as possible acquisitions or
dispositions of businesses or facilities) which have been discussed or
considered by the management of the Employer. Confidential Information includes
information developed by the Executive in the course of the Executive’s
employment by the Employer, as well as other information to which the Executive
may have access in connection with the Executive’s employment. Confidential
Information also includes the confidential information of others with which the
Employer has a business relationship. Notwithstanding the foregoing,
Confidential Information does not include information in the public domain,
unless due to breach of the Executive’s duties under Section 8(b).
 
(b)           Confidentiality.  The Executive understands and agrees that the
Executive’s employment creates a relationship of confidence and trust between
the Executive and the Employer with respect to all Confidential Information. At
all times, both during the Executive’s employment with the Employer and after
its termination, the Executive will keep in confidence and trust all such
Confidential Information, and will not use or disclose any such Confidential
Information without the prior written consent of the Employer, except as may be
necessary in the ordinary course of performing the Executive’s duties to the
Employer.

(c)           Documents. Records. etc.  All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Employer or are
produced by the Executive in connection with the Executive’s employment will be
and remain the sole property of the Employer. The Executive will return to the
Employer all such materials and property as and when requested by the Employer.
In any event, the Executive will return all such materials and property
immediately upon termination of the Executive’s employment for any reason. The
Executive will not retain with the Executive any such material or property or
any copies thereof after such termination.
 
(d)           Noncompetition and Nonsolicitation.  During the Executive’s
employment with the Employer and for one (1) year thereafter, the Executive (i)
will not, directly or indirectly, whether as owner, partner, shareholder,
consultant, agent, employee, co-venturer or otherwise, engage, participate,
assist or invest in any Competing Business (as hereinafter defined), (ii) will
refrain from directly or indirectly employing, attempting to employ, recruiting
or otherwise soliciting, inducing or influencing any person to leave employment
with the Employer (other than terminations of employment of subordinate
employees undertaken in the course of the Executive’s employment with the
Employer); and (iii) will refrain from soliciting or encouraging any customer or
supplier to terminate or otherwise modify adversely its business relationship
with the Employer. The Executive understands that the restrictions set forth in
this Section 8 are intended to protect the Employer’s interest in its
Confidential Information and established employee, customer and supplier
relationships and goodwill, and agrees that such restrictions are reasonable and
appropriate for this purpose. For purposes of this Agreement, the term
“Competing Business” shall mean a business which consists of operating specialty
HIV pharmacies anywhere within the United States. Notwithstanding the foregoing,
the Executive may own up to one percent (1%) of the outstanding stock of a
publicly-held corporation which constitutes or is affiliated with a Competing
Business. The Employer may extend the period of noncompetition and
nonsolicitation for an additional period not exceeding one (1) year, provided
that it extends and pays Termination Benefits to the Executive for the duration
of the extension, such Termination Benefits to be payable, in each case, in the
same form as provided in Section 6 but as if the Date of Termination were the
last day of the extended covenant period. Notwithstanding the foregoing, the
Executive’s obligations under Section 8(d)(i) shall terminate and be of no
further force or effect upon termination of the Executive’s Employment under any
of the circumstances described in Section 6(b).
 
(e)           Third-Party Agreements and Rights.  The Executive hereby confirms
that the Executive is not bound by the terms of any agreement with any previous
employer or other party which restricts in any way the Executive’s use or
disclosure of information or the Executive’s engagement in any business. The
Executive represents to the Employer that the Executive’s execution of this
Agreement, the Executive’s employment with the Employer and the performance of
the Executive’s proposed duties for the Employer will not violate any
obligations the Executive may have to any such previous employer or other party.
In the Executive’s work for the Employer, the Executive will not disclose or
make use of any information in violation of any agreements with or rights of any
such previous employer or other party, and the Executive will not bring to the
premises of the Employer any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other
party.

 
 

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(f)           Litigation and Regulatory Cooperation.  During and after the
Executive’s employment, the Executive shall cooperate fully with the Employer in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Executive was employed by the
Employer. The Executive’s full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Employer at mutually-convenient times. During and after the Executive’s
employment, the Executive also shall cooperate fully with the Employer in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Executive was employed by the Employer.
The Employer shall reimburse the Executive for any reasonable out-of-pocket
expenses incurred in connection with the Executive’s performance of obligations
pursuant to this Section 8(f). If the Executive is entitled to reimbursement of
expenses hereunder, the amount reimbursable in any one calendar year shall not
affect the amount reimbursable in any other calendar year, and the reimbursement
of an eligible expense must be made no later than December 31 of the year after
the year in which the expense was incurred.  The Executive’s rights and
obligations pursuant to this Section 8(f) shall expire at the end of six (6)
years after the Effective Date and shall not be subject to liquidation or
exchange for another benefit.

(g)           Injunction.  The Executive agrees that it would be difficult to
measure any damages caused to the Employer which might result from any breach by
the Executive of the promises set forth in this Section 8, and that in any event
money damages would be an inadequate remedy for any such breach. Accordingly,
subject to Section 8 of this Agreement, the Executive agrees that if the
Executive breaches, or threatens to breach, any portion of this Agreement, the
Employer shall be entitled, in addition to all other remedies that it may have,
to an injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Employer.

(h)           Definition of Employer.  For purposes of this Section 8,
“Employer” shall include Allion Healthcare, Inc. and each of its subsidiaries.

9.           Arbitration of Disputes.  Any controversy or claim arising out of
or relating to this Agreement or the breach thereof or otherwise arising out of
the Executive’s employment or the termination of that employment (including,
without limitation, any claims of unlawful employment discrimination whether
based on age or otherwise) shall, to the fullest extent permitted by law, be
settled by arbitration under the auspices of the American Arbitration
Association (“AAA”) in New York, New York, in accordance with the Employment
Arbitration and Mediation Procedures of the AAA, including, but not limited to,
the rules and procedures applicable to the selection of arbitrators. In the
event that any person or entity other than the Executive or the Employer may be
a party with regard to any such controversy or claim, such controversy or claim
shall be submitted to arbitration subject to such other person or entity’s
agreement. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. This Section 9 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 9 shall not preclude
either party from pursuing a court action for the sole purpose of obtaining a
temporary restraining order or a preliminary injunction in circumstances in
which such relief is appropriate; provided that any other relief shall be
pursued through an arbitration proceeding pursuant to this Section 9.
 
10.           Integration.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements between the parties with respect to any related subject matter.

 
 

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11.           Assignment; Successors and Assigns; etc.  Neither the Employer nor
the Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
 
12.           Enforceability.  If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
 
13.           Waiver.  No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
 
14.           Notices.  Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally-recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Chairman of the Board of Directors, and shall be effective on the date of
delivery in person or by courier or three (3) days after the date mailed.
 
15.           Amendment.  This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
 
16.           Construction.  This Agreement has been drafted and reviewed
jointly by the parties, and no presumption of construction as to the drafting of
this Agreement shall be applied against or in favor of any party.
 
17.           Governing Law.  This is a New York contract and shall be construed
under and be governed in all respects by the laws of the State of New York,
without giving effect to the conflict of laws principles of New York. With
respect to any disputes concerning federal law, such disputes shall be
determined in accordance with the law as it would be interpreted and applied by
the United States Court of Appeals for the Second Circuit.
 
18.           Indemnification.  The provisions of Article VII (Indemnification)
of the Fourth Amended and Restated By Laws of the Employer as in effect on the
date hereof are deemed incorporated herein by reference and any amendment to
such By Laws after the date hereof shall not be incorporated by reference herein
if the effect thereof is to reduce the rights conferred on the Executive. To the
extent the Executive is covered by any Director’s and Officer’s insurance
maintained by the Employer for the period during which the Executive provides
services hereunder, the Employer will undertake reasonable efforts to make
available to the Executive the benefit of such insurance.

 
 

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19.           Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.

20.           Code Section 409A.

(a)           This Agreement shall be interpreted and administered in a manner
so that any amount or benefit payable hereunder shall be paid or provided in a
manner that is either exempt from or compliant with the requirements of Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”) and
applicable Internal Revenue Service guidance and Treasury Regulations issued
thereunder (and any applicable transition relief under Section 409A of the
Code). Nevertheless, the tax treatment of the benefits provided under the
Agreement is not warranted or guaranteed.  Neither the Employer nor its
directors, officers, employees or advisers shall be held liable for any taxes,
interest, penalties or other monetary amounts owed by Executive as a result of
the application of Section 409A of the Code.

(b)           Notwithstanding anything in this Agreement to the contrary, to the
extent that any amount or benefit that would constitute non-exempt “deferred
compensation” for purposes of Section 409A of the Code would otherwise be
payable or distributable hereunder by reason of the Executive’s disability or
termination of employment, such amount or benefit will not be payable or
distributable to the Executive by reason of such circumstance unless (i) the
circumstances giving rise to such disability or termination of employment, as
the case, may be, meet any description or definition of “disability” or
“separation from service”, as the case may be, in Section 409A of the Code and
applicable regulations (without giving effect to any elective provisions that
may be available under such definition), or (ii) the payment or distribution of
such amount or benefit would be exempt from the application of Section 409A of
the Code by reason of the short-term deferral exemption or otherwise.  This
provision does not prohibit the vesting of any amount upon a disability or
termination of employment, however defined.  If this provision prevents the
payment or distribution of any amount or benefit, such payment or distribution
shall be made on the date, if any, on which an event occurs that constitutes a
Section 409A-compliant “disability” or “separation from service,” as the case,
may be, or such later date as may be required by subsection (c) below.

(c)           Notwithstanding anything in this Agreement to the contrary, if any
amount or benefit that would constitute non-exempt “deferred compensation” for
purposes of Section 409A of the Code would otherwise be payable or distributable
under this Agreement by reason of the Executive’s separation from service during
a period in which he is a Specified Employee (as defined below), then, subject
to any permissible acceleration of payment by the Employer under Treas. Reg.
Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of
interest), or (j)(4)(vi) (payment of employment taxes):

(i)           if the payment or distribution is payable in a lump sum, the
Executive’s right to receive payment or distribution of such non-exempt deferred
compensation will be delayed until the earlier of (A) a date no later than
thirty (30) days following the Executive’s death, or (B) the first day of the
seventh month following the Executive’s separation from service; and

(ii)           if the payment or distribution is payable over time, the amount
of such non-exempt deferred compensation that would otherwise be payable during
the six-month period immediately following the Executive’s separation from
service will be accumulated and the Executive’s right to receive payment or
distribution of such accumulated amount will be delayed until the earlier of (A)
a date no later than thirty (30) days following the Executive’s death, or (B)
the first day of the seventh month following the Executive’s separation from
service, whereupon the accumulated amount will be paid or distributed to the
Executive and the normal payment or distribution schedule for any remaining
payments or distributions will resume.

For purposes of this Agreement, the term “Specified Employee” has the meaning
given such term in Code Section 409A and the final regulations thereunder,
provided, however, that, as permitted in such final regulations, the Employer’s
Specified Employees and its application of the six-month delay rule of Code
Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by
the Board of Director or the Compensation Committee, which shall be applied
consistently with respect to all nonqualified deferred compensation arrangements
of the Employer, including this Agreement.

(d)           If Executive is entitled to be paid or reimbursed for any taxable
expenses under this Agreement, and such payments or reimbursements are
includible in Executive’s federal gross taxable income, the amount of such
expenses reimbursable in any one calendar year shall not affect the amount
reimbursable in any other calendar year, and the reimbursement of an eligible
expense must be made no later than December 31 of the year after the year in
which the expense was incurred.  Except as otherwise provided in this Agreement,
Executive’s rights to payment or reimbursement of expenses shall expire at the
end of six (6) years after the Effective Date.  No right of Executive to
reimbursement of expenses shall be subject to liquidation or exchange for
another benefit.

[Signatures on Following Page]

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IN WITNESS WHEREOF, this Agreement has been executed by the Employer, by its
duly authorized officer, and by the Executive, as of the date first written
above.

  /s/ Robert E. Fleckenstein,
R.Ph.                                                                
Robert E. Fleckenstein, R.Ph.
 

 
ALLION HEALTHCARE, INC.

By:  /s/ Michael P.
Moran                                                                
     Michael P. Moran
     Chief Executive Officer

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