ALLI Allion Healthcare (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, For Use By the Commission Only (as permitted by Rule 14a- 6(e)(2) )
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to Rule 14a-12

Allion Healthcare, Inc.

(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.*

	(1)		Title of each class of securities to which transaction applies:
			Allion Healthcare, Inc. common stock, par value $0.001 per share
	(2)		Aggregate number of securities to which transaction applies:
			20,787,548.46 shares of common stock 431,750 options to purchase shares of common stock 455,657 warrants to purchase shares of common stock 2,200,000 cash-settled phantom stock units
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			$6.60 per share
	(4)		Proposed maximum aggregate value of the transaction:
			$161,260,374.29
	(5)		Total fee paid:
			$8,998.32

þ		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

Amount Previously Paid:

(2)

Form, Schedule or Registration Statement No.:

(3)

Filing party:

(4)

Date Filed:

 

ALLION HEALTHCARE, INC.
1660 Walt Whitman Road, Suite 105
Melville, New York 11747

 

December 22, 2009

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Allion Healthcare, Inc. to be held on Monday, January 11, 2010, at 10:00 a.m. Eastern time, at the offices of Alston & Bird LLP, 90 Park Avenue, 15 ^th Floor, New York, NY 10016.

 

At the special meeting, you will be asked to consider and vote upon the adoption of the Agreement and Plan of Merger, dated October 18, 2009, by and among Brickell Bay Acquisition Corp., which we refer to as Parent, Brickell Bay Merger Corp., which we refer to as Merger Sub, and Allion. Pursuant to the merger agreement, Merger Sub will be merged with and into Allion, with Allion surviving as a direct, wholly owned subsidiary of Parent. Certain of our stockholders are expected to exchange shares of Allion common stock for equity interests of Parent in connection with the merger. Parent and Merger Sub are both controlled by investment funds affiliated with H.I.G. Capital, L.L.C., a private equity firm.

 

Assuming the holders of a majority of our issued and outstanding shares of common stock adopt the merger agreement and the merger is completed, upon completion of the merger, you will be entitled to receive $6.60 in cash, without interest, for each share of Allion common stock that you own, unless you have sought and properly perfected your appraisal rights under Delaware law. After the merger, you will no longer have an equity interest in Allion and will not participate in any potential future earnings and growth of Allion.

 

The proposed merger was negotiated by an independent Special Committee of our Board of Directors, consisting of Willard T. Derr and Gary P. Carpenter. Our Board of Directors, acting on the recommendation of the Special Committee, has adopted a resolution unanimously approving the merger agreement. Both the Special Committee and our Board of Directors have unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interest of Allion and our stockholders. Acting on the recommendation of the Special Committee, the Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement. In arriving at their recommendation, the Special Committee and Board of Directors carefully considered a number of factors described in the accompanying Proxy Statement.

 

The merger agreement and the merger are described in the accompanying Proxy Statement. A copy of the merger agreement is attached as Appendix A to the accompanying Proxy Statement. We urge you to read carefully the accompanying Proxy Statement, including the appendices.

 

Your vote is important, and it is important that your shares be represented at the special meeting, regardless of the number of shares you hold. We urge you to submit your proxy card as soon as possible. Even if you plan to attend the special meeting, please sign and promptly return your proxy card in the enclosed postage-paid envelope. Even if you return a proxy card, if you attend the special meeting, you may revoke your proxy and vote in person.

 

Sincerely,

 

Michael P. Moran

Chairman, President and Chief Executive Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ALLION HEALTHCARE, INC.
1660 Walt Whitman Road, Suite 105
Melville, New York 11747

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD MONDAY, JANUARY 11, 2010

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Allion Healthcare, Inc. will be held at the offices of Alston & Bird LLP, 90 Park Avenue, 15 ^th Floor, New York, NY 10016, on Monday, January 11, 2010, at 10:00 a.m. Eastern time, for the following purposes:

 

1. To consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of October 18, 2009, by and among Brickell Bay Acquisition Corp., Brickell Bay Merger Corp. and Allion Healthcare, Inc. Pursuant to the merger agreement, Allion will become an indirect, wholly owned subsidiary of Brickell Bay Acquisition Corp., and the holders of Allion common stock will be entitled to receive $6.60 in cash, without interest, per share of Allion common stock held by them at the effective time of the merger;

 

2. To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in support of Proposal 1 if there are insufficient votes at the time of the meeting to adopt the merger agreement; and

 

3. To consider and vote upon any other matter that may properly come before the special meeting or any adjournment thereof.

 

You are entitled to receive notice of and to attend and vote at the special meeting and any postponements or adjournments if you owned shares of Allion stock as of the close of business on December 11, 2009. To ensure your representation at the special meeting, please complete, date and sign the enclosed proxy card and return it in the enclosed postage-prepaid envelope in time to be received by us prior to the special meeting. Returning your proxy card will not affect your right to revoke your proxy or to attend the special meeting and vote in person.

 

REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT BE COMPLETED UNLESS A MAJORITY OF THE OUTSTANDING SHARES OF ALLION COMMON STOCK ENTITLED TO VOTE ON THE MERGER ADOPT THE MERGER AGREEMENT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

 

By order of the Board of Directors,

 

Stephen A. Maggio

Secretary

Melville, New York

December 22, 2009

 

Please do not send your Allion common stock certificates to us at this time. If the merger is completed, we will send you instructions regarding the surrender of your certificates.

TABLE OF CONTENTS

 

ALLION HEALTHCARE, INC.
1660 WALT WHITMAN ROAD, SUITE 105
MELVILLE, NEW YORK 11747

 

 

 

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JANUARY 11, 2010

 

 

 

We are providing these proxy materials to you in connection with the solicitation of proxies by the Board of Directors of Allion Healthcare, Inc. for a special meeting of stockholders to be held on January 11, 2010 and for any adjournment or postponement thereof. This Proxy Statement provides information that you should read before you vote on the proposals that will be presented to you at the special meeting. The special meeting will be held on Monday, January 11, 2010 at 10:00 a.m. Eastern Time at the offices of Alston & Bird LLP, 90 Park Avenue, 15 ^th Floor, New York, NY 10016.

 

In this Proxy Statement, we refer to Allion Healthcare, Inc. as “Allion,” the “Company,” “we” or “us.” We refer to H.I.G. Capital, L.L.C. as “H.I.G.,” Brickell Bay Acquisition Corp. as “Parent,” Brickell Bay Merger Corp. as “Merger Sub,” and Parallex LLC as “Parallex.” References in this Proxy Statement to our “unaffiliated stockholders” are deemed to refer to holders of Allion stock other than the rollover stockholders and affiliates of Allion (including officers and directors).

 

This Proxy Statement and a proxy card are first being mailed on or about December 22, 2009 to people who owned shares of Allion common stock as of the close of business on December 11, 2009.

 

This summary term sheet presents selected information in this Proxy Statement relating to the merger and may not contain all of the information that is important to you. To understand the merger and the transactions contemplated by the merger agreement fully, you should carefully read this entire document as well as the additional documents to which it refers. For instructions on obtaining more information, see “Where You Can Find More Information” on page 96. We have included page references to direct you to a more complete description of the topics presented in this summary.

 

Parties Involved in the Merger (see page 13)

 

 

The Special Meeting (see page 68)

 

 

 

 

 

 

The Merger (see page 71)

 

 

 

Effects of the Merger on Our Common Stock and Equity Awards (see page 71)

 

 

 

Purpose of the Merger (see page 30)

 

 

Recommendation of the Special Committee and our Board of Directors (see page 24)

 

 

Fairness of the Merger; Reasons for the Recommendation of the Special Committee and our Board of Directors (see page 24)

 

 

 

Position of the H.I.G. Buying Group as to the Fairness of the Merger (see page 30)

 

 

Position of the Parallex Group as to the Fairness of the Merger (see page 33)

 

 

Fairness Opinion of Raymond James & Associates, Inc. (see page 35)

 

 

Interests of Certain Persons in the Merger (see page 54)

 

 

Covenants (see page 75)

 

 

Acquisition Proposals (see page 76)

 

 

 

Conditions to the Merger (see page 77)

 

 

 

Termination (see page 78)

 

 

Termination Fees; Expenses (see page 79)

 

 

 

 

 

 

 

Appraisal Rights (see page 81)

 

 

 

 

 

Material U.S. Federal Income Tax Consequences (see page 62)

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting and the merger, and other matters to be considered by Allion’s stockholders at the special meeting. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this Proxy Statement, the appendices to this Proxy Statement and the documents referred to in this Proxy Statement.

 

Q: When and where is the special meeting?

 

A:  The special meeting is scheduled to take place on January 11, 2010 at 10:00 a.m. Eastern time, at the offices of Alston & Bird LLP, 90 Park Avenue, 15 ^th Floor, New York, NY 10016.

 

Q: What is the purpose of the special meeting?

 

A:  At the special meeting, our stockholders will be asked to vote on a proposal to adopt the Agreement and Plan of Merger, dated as of October 18, 2009, by and between Allion, Parent and Merger Sub.

 

Our stockholders may also be asked to vote to adjourn the special meeting to solicit additional proxies in support of the proposal to adopt the merger agreement, if there are not sufficient votes at the special meeting to adopt the merger agreement.

 

Q: Why am I receiving this Proxy Statement and proxy card?

 

A:  You are receiving this Proxy Statement and proxy card because you own shares of Allion common stock. This Proxy Statement describes matters on which we urge you to vote at the special meeting and is intended to assist you in deciding how to vote your shares. If your shares are held by a bank or brokerage firm, you are considered the beneficial owner of shares held in “street name.” If your shares are held in street name, your bank or brokerage firm (the record holder of your shares) forwarded these proxy materials, along with a voting instruction card, to you.

 

Q: What is a proxy?

 

A:  A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of stock. The written document describing the matters to be considered and voted on at the meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of stock is called a “proxy card.” Our Board of Directors has designated two of our officers, Michael P. Moran and Russell A. Fichera, as proxies for the special meeting.

 

Q: How many shares must be present to hold the meeting?

 

A:  A quorum must be present at the special meeting for any business to be conducted. The presence, in person or by proxy, of holders of record of a majority of the issued and outstanding shares of Allion stock entitled to vote at the special meeting will constitute a quorum. Proxy cards received by us but marked “ABSTAIN” will be included in the calculation of the number of shares considered to be present at the meeting. If you hold your shares in street name and do not give instructions to your bank or brokerage firm on how to vote your shares, it will not be permitted to vote your shares at the special meeting and your shares will not be counted for purposes of establishing a quorum. If a quorum is not present, a vote cannot occur, and a majority in interest of the stockholders entitled to vote at the meeting, present in person or by proxy, may adjourn the meeting until a quorum is present or represented. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given.

 

Q: What vote is required to adopt the merger agreement and approve the adjournment, if necessary?

 

A:  Adoption of the merger agreement requires the affirmative vote of a majority of the outstanding shares of Allion common stock entitled to vote on the merger. Adjournment of the special meeting, if necessary to solicit additional proxies, requires the approval of a majority of the votes cast. The rollover stockholders, who beneficially own approximately 41.1% of the outstanding Allion common stock, have executed voting agreements pursuant to which they have agreed to vote their shares of Allion common stock in favor of adoption of the merger agreement at the special meeting. In addition, the directors and executive

officers of Allion, who beneficially own approximately 0.2% of the outstanding Allion common stock, have informed us that they intend to vote all of their shares of Allion common stock “FOR” the adoption of the merger agreement and “FOR” any adjournment of the special meeting, if necessary to solicit additional proxies.

 

Q: Who is entitled to attend the special meeting?

 

A:  You are entitled to attend the special meeting if you owned shares of Allion stock at the close of business on December 11, 2009, which Allion has set as the record date for the special meeting. Stockholders must present a form of photo identification to be admitted to the special meeting. If you hold your shares in street name, you are invited to attend the special meeting, but you will also need to bring a copy of your bank or brokerage statement, evidencing your ownership as of the record date, to gain admittance.

 

Q: Who is entitled to vote?

 

A:  You are entitled to vote on the proposals to be considered at the special meeting if you owned shares of Allion stock at the close of business on December 11, 2009, the record date for the special meeting. For each share of Allion common stock you owned at the close of business on the record date, you will have one vote on each proposal presented at the special meeting. On the record date, there were 28,700,248 shares of Allion common stock issued and outstanding and entitled to vote at the special meeting.

 

Q: What happens if I sell my shares before the special meeting?

 

A:  The record date for the special meeting, December 11, 2009, is earlier than the date of the special meeting. If you held your shares on the record date but transfer them prior to the effective time of the merger, you will retain your right to vote at the special meeting, but you will lose the right to receive the merger consideration for your shares. The right to receive such merger consideration will pass to the person who owns your shares when the merger becomes effective.

 

Q: How do I vote?

 

A:  If you are a registered stockholder, meaning that you hold your shares in certificate form or through an account with Allion’s transfer agent, Continental Stock Transfer & Trust Company, you may submit a proxy prior to the special meeting or you may vote in person at the special meeting.

 

To vote in person at the special meeting, you must attend the meeting and obtain and submit a ballot. Ballots for voting in person will be available at the special meeting. If you are a beneficial owner of shares held in “street name” by a bank or brokerage firm, you may not vote your shares in person at the special meeting unless you obtain a power of attorney or proxy form from the record holder of your shares.

 

To submit a proxy to vote your shares of stock, you must complete and return the enclosed proxy card in time to be received by us prior to the special meeting, or you may deliver your proxy card in person at the special meeting. If a proxy card is properly executed, returned to us and not revoked, the shares represented by the proxy will be voted in accordance with the instructions set forth on the proxy card. We know of no other business that will be presented at the special meeting. However, if any other matter properly comes before the stockholders for vote at the special meeting, your shares will be voted in accordance with the best judgment of the proxy holders.

 

If your shares are held in street name, your bank or brokerage firm forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares. If you are the beneficial owner of the shares, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions.

Q: What if I do not specify how my shares are to be voted?

 

A:  If you are a registered stockholder, and you submit a proxy card but do not provide voting instructions, your shares will be voted:

 

 

If you hold your shares in street name and do not give instructions to your bank or brokerage firm, it will not be permitted to vote your shares and your shares will not be considered present at the special meeting. As a result, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement, but it will have no effect on any vote with respect to the adjournment of the meeting to solicit additional proxies in support of the proposal to adopt the merger agreement.

 

Q: How do I change my vote after I submit my proxy?

 

A:  If you decide to change your vote, you may revoke your proxy at any time before it is voted at the special meeting. You may revoke your proxy in one of three ways:

 

1. You may notify the Secretary of Allion or Allion’s proxy solicitor, Okapi Partners, in writing that you wish to revoke your proxy. Please contact Allion Healthcare, Inc., 1660 Walt Whitman Road, Suite 105, Melville, New York 11747, Attention: Secretary, or Okapi Partners, 780 Third Avenue, 30th floor, New York, New York 10017. We must receive your notice before the time of the special meeting.

 

2. You may submit a properly executed proxy card with a later date than your original proxy card. We must receive your later-dated proxy card before the time of the special meeting.

 

3. You may attend the special meeting and vote in person. Merely attending the special meeting will not by itself revoke a proxy; you must obtain a ballot and vote your shares at the special meeting to revoke the proxy.

 

Q: Who will solicit and pay the cost of soliciting proxies?

 

A:  Allion is paying the cost of soliciting these proxies. Upon request, Allion will reimburse brokers and other nominees for their reasonable out-of-pocket expenses for forwarding these proxy materials to the beneficial owners of Allion shares. Allion’s directors, officers and employees may solicit proxies in person or by telephone, mail, facsimile, email or otherwise, but they will not receive additional compensation for their services. In addition, Allion will pay approximately $6,500 (plus per call fees and reimbursement of out-of-pocket expenses) to Okapi Partners, the Company’s proxy solicitor.

 

Q: What will be the effect of the merger?

 

A:  After the effective time of the merger, you will no longer own any shares of Allion common stock. All of the capital stock of Allion following completion of the merger will be wholly owned by Parent.

 

Q: If the merger is completed, what will I receive for the shares of Allion common stock I hold?

 

A:  If the merger is completed, each share of Allion common stock that you own at the effective time of the merger will be automatically cancelled and converted into the right to receive $6.60 in cash, without interest and subject to applicable tax withholding requirements. However, if you perfect your appraisal rights, you will not receive the $6.60 per share merger consideration and instead your shares will be subject to appraisal in accordance with Delaware law.

 

Q: If the merger is completed, what will happen to outstanding options and warrants to acquire Allion common stock?

 

A:  Prior to the effective time of the merger, the Company will cause each outstanding Allion stock option to vest in full. Each stock option to purchase Allion common stock outstanding at the effective time of the merger will be cancelled and converted into the right to receive an amount in cash equal to (i) the number

of shares subject to such option multiplied by (ii) the excess (if any) of $6.60 over the exercise price per share of such option. Each outstanding warrant to purchase Allion common stock, whether or not vested, will be cancelled and converted into the right to receive an amount in cash equal to (i) the number of shares subject to such warrant, multiplied by (ii) the excess (if any) of $6.60 over the exercise price per share of such warrant. If the exercise price per share of an option or warrant to acquire Allion common stock equals or exceeds the $6.60 per share merger consideration, such option or warrant will be cancelled without payment.

 

Q: What should I do now?

 

A:  After you read and consider carefully the information contained in this Proxy Statement, please return your proxy as soon as possible so that your shares may be represented at the special meeting. If your shares of Allion common stock are registered in your own name, you may submit your proxy by filling out and signing the proxy card and then mailing your signed proxy card in the enclosed pre-paid envelope. If your shares are held in “street name,” please follow the directions your broker or bank has provided.

 

Q: Should I send in my stock certificates now?

 

A:  No. If the merger agreement is adopted and other conditions to the merger are satisfied, shortly after the merger is completed you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to Continental Stock Transfer & Trust Company, the exchange agent appointed by Merger Sub. YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.

 

Q: When do you expect the merger to be completed?

 

A:  We are working towards completing the merger as soon as possible. Assuming timely satisfaction of necessary closing conditions, we expect the merger to be completed in the first quarter of 2010.

 

Q: When will I receive the cash payment for my shares?

 

A:  Assuming that you do not elect to exercise your appraisal rights, shortly after the effective time of the merger, Continental Stock Transfer & Trust Company, the exchange agent appointed by Merger Sub, will send to you a letter of transmittal with instructions regarding the surrender of your share certificates in exchange for the merger consideration. Once you have delivered an executed copy of the letter of transmittal together with your share certificates to Continental Stock Transfer & Trust Company, it will promptly pay the merger consideration owing to you, less any applicable withholding taxes.

 

Q: Where can I find more information about Allion?

 

A:  We file reports, proxy statements and other information with the Securities and Exchange Commission, referred to as the SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy this information at the SEC’s public reference facilities. You may call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available at the Internet site the SEC maintains at www.sec.gov . You can also request copies of these documents from us. See “Where You Can Find More Information” on page 96.

 

Q: Who can help answer my other questions?

 

A:  If you have further questions about the merger, you should contact our proxy solicitor at the following address and telephone number:

 

Allion Healthcare, Inc.

 

Allion Healthcare, Inc. is a Delaware corporation and a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients as well as specialized biopharmaceutical medications and services to chronically ill patients. Allion sells HIV/AIDS medications, ancillary drugs and nutritional supplies under the trade name MOMS Pharmacy. Allion also provides services for intravenous immunoglobulin, Blood Clotting Factor and other therapies through its Biomed America division. Allion works closely with physicians, nurses, clinics, AIDS Service Organizations, and government and private payors to improve clinical outcomes and reduce treatment costs.

 

Allion’s principal executive offices are located at 1660 Walt Whitman Road, Suite 105, Melville, New York 11747, and its telephone number is (631) 547-6520.

 

Brickell Bay Acquisition Corp.

 

Brickell Bay Acquisition Corp., or Parent, is a Delaware corporation formed solely in anticipation of the merger by entities affiliated with H.I.G. Capital, L.L.C., a leading global private equity investment firm focused exclusively on the middle market with more than $7.5 billion of equity capital under management. The rollover stockholders are expected to exchange a portion of their shares of Allion common stock for equity interests in Parent in connection with the merger. Parent currently has de minimis assets and has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

 

Parent’s principal executive offices are located at 1001 Brickell Bay Drive, 27th Floor, Miami, Florida 33131, and its telephone number is (305) 379-2322.

 

Brickell Bay Merger Corp.

 

Brickell Bay Merger Corp., or Merger Sub, is a Delaware corporation formed by Parent solely for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger. Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Merger Sub will merge with and into Allion, with Allion continuing as the surviving corporation. Merger Sub currently has de minimis assets and has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

 

Merger Sub’s principal executive offices are located at 1001 Brickell Bay Drive, 27th Floor, Miami, Florida 33131, and its telephone number is (305) 379-2322.

 

Parallex LLC

 

Parallex LLC, or Parallex, is a Delaware limited liability company and a former stockholder of Biomed America, Inc., which Allion acquired in April 2008. Parallex is controlled by Raymond A. Mirra, Jr. and, as of December 11, 2009 beneficially owned 7,903,499 shares of Allion common stock, representing approximately 27.5% of the outstanding shares of Allion common stock. Parallex and certain other stockholders, whom we collectively refer to as the rollover stockholders, have entered into exchange agreements with Parent pursuant to which such rollover stockholders have agreed to surrender to Parent, immediately prior to the effective time of the merger, a portion of the shares of Allion common stock owned beneficially or of record by such rollover stockholders, in exchange for equity interests in Parent. Each of the rollover stockholders is a former stockholder of Biomed America, Inc., which Allion acquired in April 2008. None of the rollover stockholders, other than Parallex, is an affiliate of Allion.

Parallex’s principal executive offices are located at 27181 Barefoot Boulevard, Millsboro, Delaware 19966, and its telephone number is (610) 586-1655.

 

As part of the ongoing management and oversight of Allion’s business, our Board of Directors and senior management have regularly reviewed and discussed the Company’s strategic direction, performance, risks, and long term plans. In the course of these discussions, our Board of Directors and senior management have periodically explored and assessed strategic options as part of an ongoing effort to strengthen the Company’s business and enhance stockholder value.

 

In early 2009, our Board of Directors became more focused on risks associated with potential reductions in reimbursement rates, including as a result of state budget cuts, health care reform, the status of premium reimbursement programs in California and New York, and revisions to the industry’s pricing benchmarks, as well as the costs and expenses associated with our status as a public company. Our Board of Directors had also been focused for some time on the volatile nature of the trading price and the low average trading volume of our stock. In combination, those factors were continuing to restrict liquidity for our stockholders as a result of the difficulty associated with acquiring or divesting significant blocks of Allion shares without creating short-term disruptions in the market price. Limited liquidity and low average trading volume were also making it difficult for the Company to attract long-term, fundamental-oriented institutional investors, as well as institutional quality research and trading support. As a result of these factors and others, our Board of Directors determined to begin a formal process to explore strategic alternatives to maximize stockholder value, including a sale of the Company.

 

On January 30, 2009, in light of market, economic, competitive, regulatory and other conditions and developments, in part based upon our management’s recommendation, and after considering a number of other financial advisors, our Board of Directors engaged Raymond James as the Company’s financial advisor to facilitate a process for and explore a possible sale of the Company. Management’s recommendation to retain Raymond James was based, in large part, on Raymond James being a nationally known investment banking firm, with considerable expertise in the health care industry generally, experience in the specialty pharmacy sector in particular, and management’s knowledge that Raymond James had previously worked with Mr. Mirra.

 

On February 17, 2009, Raymond James began contacting potential strategic and financial buyers, contacting 60 total potential buyers over the course of the process. As a result of these contacts, we executed confidentiality agreements with 51 potential buyers, including 17 strategic candidates and 34 financial sponsors.

 

From February 18 through April 21, 2009, Raymond James provided each party who had executed a confidentiality agreement with a confidential information memorandum and various supplemental analyses regarding our business. During that time, we also responded, through Raymond James and Alston & Bird, to initial diligence questions from the potential buyers who had executed confidentiality agreements.

 

On March 2, 2009, at a regularly scheduled meeting of our Board of Directors, at which our Chief Financial Officer was present, Raymond James summarized the status of the process, including the nature, number and status of the parties that had been contacted and the number and status of those parties that had entered into confidentiality agreements.

 

On or around March 25, 2009, Raymond James provided the 27 potential buyers who remained active in the process with process guidelines, which requested that any party wishing to proceed further in the process submit a preliminary, non-binding written proposal by April 3, 2009. The process guidelines further provided that the preliminary proposals must, among other items, specify the potential buyer’s valuation of the Company, contemplated transaction structure, and prospective sources of financing required to close the potential transaction.

 

On April 3, 2009, the deadline for preliminary proposals established by the process letter distributed by Raymond James, we received written preliminary proposals from five financial sponsors. Each proposal

provided for the purchase of all of our outstanding common stock for cash at prices ranging from $4.66 to $6.00 per share.

 

On April 6 and 7, 2009, we received two additional written preliminary proposals from financial sponsors. Both of these proposals also provided for the purchase of all of our outstanding common stock for cash, at prices ranging between $4.25 and $5.50 per share.

 

On April 8, 2009, Raymond James provided our Chairman and Chief Executive Officer, our Chief Financial Officer and one of our other directors, Flint Besecker, whom our Board of Directors had designated to receive updates on its behalf, with an overview of the seven preliminary proposals received as of that date. Raymond James also noted that it expected feedback from the two potential remaining strategic candidates within a few days.

 

On April 10, 2009, we received an oral preliminary proposal from one of the two remaining strategic candidates for an all-cash purchase of our outstanding common stock at a price range of $5.50 to $6.50 per share. That same day, Raymond James also informed our Chairman and Chief Executive Officer and our Chief Financial Officer that the other remaining strategic candidate had elected not to submit a proposal.

 

On April 13, 2009, our Board of Directors and our Chief Financial Officer met with Raymond James and Alston & Bird to review the eight preliminary proposals received. Raymond James identified each remaining potential buyer and discussed the significant financial terms of each preliminary proposal, including price range per share, sources of financing, and financing contingencies. Raymond James also outlined a potential process for advancing the due diligence efforts of, and discussions with, the remaining potential buyers. Following a discussion of the proposals, our Board of Directors resolved to allow five of the parties from whom we had received preliminary proposals to move forward in the potential transaction process. Our Board of Directors directed Raymond James to obtain a written proposal with more specific terms from the potential strategic buyer and to request improved proposals from the two parties who had submitted the lowest price ranges in their preliminary proposals. Our Board of Directors discussed the desire to establish a committee of convenience to consider and negotiate the potential transaction on behalf of the Company, the Board of Directors and our stockholders. At that meeting, a representative of Alston & Bird also reviewed for our Board of Directors the fiduciary duties of directors under Delaware law in the context of a proposed transaction involving a change in control of the Company. Our Board of Directors considered that the seven written preliminary proposals were submitted by financial sponsors, who might choose to retain Company management following the potential transaction. Our Board of Directors discussed the resulting potential for a conflict of interest to develop and determined that the committee should be composed of independent and disinterested directors. After reviewing the independence and potential conflicts of interest of the members of our Board of Directors, our Board of Directors established an informal Negotiating Committee comprised of two of our independent and disinterested directors, Flint Besecker and Gary Carpenter. Our Board of Directors authorized the Negotiating Committee to review, evaluate, negotiate and recommend for approval by our full Board of Directors the terms of any potential transaction involving a change in control of the Company, and provided the Negotiating Committee with all power necessary to execute its purposes, including the power to retain advisors.

 

Beginning on or around April 13 through April 28, 2009, at the direction of our Board of Directors, we provided the six potential buyers from whom we had received preliminary proposals with the highest prices per share with access to an online data room, which included certain confidential financial, legal, and operational information, as well as a draft of a proposed form of merger agreement, and those parties conducted due diligence investigations of our business.

 

In April 2009, H.I.G. became aware that the Company was conducting a solicitation process with regard to a potential transaction through a third-party investment banking firm that suggested that H.I.G. contact Raymond James. H.I.G. had previously become aware of us as a result of other transactions that we had explored and had continued to monitor developments regarding us. H.I.G. contacted Raymond James and on April 13, 2009, we executed a confidentiality agreement with H.I.G. Raymond James subsequently provided H.I.G. with access to the preliminary information materials previously provided to the other potential purchasers who had executed confidentiality agreements.

 

During the week of April 13, 2009, as directed by our Board of Directors, Raymond James contacted the two potential buyers who had submitted the lowest price ranges in their preliminary proposals, to request improved proposals. Both potential purchasers declined to increase their proposals and were dismissed from the process. Raymond James also contacted the strategic party that had submitted the oral proposal in order to request additional information regarding their proposal and to request that their proposal be submitted promptly in writing. The strategic party reiterated their interest to Raymond James, provided additional information regarding their oral proposal, but indicated that due to internal review and approval requirements, they would not be able to provide us with a written proposal within the timeframe we requested.

 

On April 20, 2009, we received a written preliminary proposal from H.I.G., increasing the total number of preliminary proposals received to nine. The H.I.G. proposal contemplated an all-cash purchase of all outstanding Allion common stock at a price range of $5.50 to $6.00 per share. Raymond James informed the Negotiating Committee, which directed Raymond James to invite H.I.G. to continue in the process and provide H.I.G. with data room access.

 

On April 27, 2009, we received a tenth written preliminary proposal from a financial buyer, with an indicated price range of between $7.00 and $7.50 per share. Raymond James informed the Negotiating Committee, which directed Raymond James to invite the party to continue in the process and provide the party with data room access.

 

At the direction of the Negotiating Committee, between April 23 and May 8, 2009, our Chairman and Chief Executive Officer and our Chief Financial Officer made presentations regarding the Company’s business to the eight remaining potential buyers who had submitted preliminary proposals and had been invited to advance in the Company’s process, including H.I.G.

 

During the weeks of May 4 and May 11, 2009, Raymond James notified the eight remaining potential buyers of the procedures for submitting a final offer, setting a deadline for final offers of May 18, 2009.

 

On May 5, 2009, at a regularly scheduled meeting of our Board of Directors, at which our Chief Financial Officer was present, Raymond James discussed the initial feedback received from the remaining potential buyers and the follow-up due diligence requests received following the buyers’ meetings with Company management.

 

Between May 11 and May 15, 2009, our Chairman and Chief Executive Officer and our Chief Financial Officer held conference calls with three of the remaining potential buyers to provide additional information about our business. In addition, we responded to additional due diligence requests from a number of the remaining potential purchasers through Raymond James and Alston & Bird.

 

During the weeks of May 11 and May 18, 2009, all of the remaining potential buyers, other than H.I.G., notified Raymond James of their decision to cease evaluating a potential transaction with the Company and exit the process, citing various reasons generally relating to risks associated with reductions in reimbursement rates and patient and profitability concentrations in certain segments of our business.

 

On May 12, 2009, because of H.I.G.’s belief that a transaction could not be completed on economically acceptable terms without a substantial percentage of our stockholders agreeing to rollover their equity, H.I.G. met with Raymond Mirra, the sole voting equity holder of Parallex, to discuss the Company’s business.

 

On May 20, 2009, H.I.G. submitted a letter to Parallex, outlining a proposed structure for a transaction in which certain of our stockholders, including Parallex, who had formerly been stockholders of Biomed America, Inc. would be required to exchange their shares of Allion common stock for equity interests in H.I.G.’s acquisition vehicle. The former stockholders of Biomed America, Inc. were invited to exchange their equity interests into H.I.G.’s acquisition vehicle because of the importance of the Biomed business to Allion’s future growth and the ongoing integration of the Biomed business, as well as the administrative convenience of negotiating through a single stockholder to reduce the equity commitment required by H.I.G.

 

On May 20, 2009, H.I.G. submitted a written confirmation of its proposal to Raymond James to purchase our outstanding common stock at price range between $5.50 and $6.00 per share in cash, with the additional

requirement that H.I.G. and Mr. Mirra reach a suitable unspecified arrangement regarding his continued involvement in the Company, should H.I.G. acquire the Company.

 

On May 21, 2009, our Board of Directors met with our Chief Financial Officer, Raymond James and Alston & Bird. During that meeting, Raymond James discussed the status of the potential transaction process. After reviewing the stated rationale of the potential buyers who had elected to leave the potential transaction process, Raymond James reviewed the financial terms of H.I.G.’s proposal, including the price range, H.I.G.’s condition that it enter into a suitable, unspecified arrangement with Mr. Mirra, and H.I.G.’s indication that Company management would receive equity incentive compensation post-closing. A representative of Alston & Bird reviewed for our Board of Directors the fiduciary duties of directors under Delaware law in the context of a proposed transaction involving a change in control of the Company, including considerations for establishing a formal Special Committee of independent directors to evaluate the potential transaction. Upon consideration of the potential roles of Company management and Mr. Mirra in a potential transaction with H.I.G., our Board of Directors determined that the formation of a formal Special Committee was appropriate and advisable. Our Board of Directors established a formal Special Committee, consisting of Willard Derr and Gary Carpenter, to review, evaluate, negotiate and recommend for approval by our full Board of Directors a potential transaction involving a change in control of the Company, including the proposed acquisition by H.I.G.

 

The Special Committee considered whether it would be in the best interest of the Company’s stockholders to retain a financial advisor other than Raymond James and legal counsel other than Alston & Bird. The Special Committee determined that it was not in the best interest of the Company’s stockholders to retain a financial advisor other than Raymond James or legal counsel other than Alston & Bird because of Raymond James’s and Alston & Bird’s respective extensive involvement in the potential transaction process to date, knowledge about the Company and the specialty pharmacy industry generally, experience in similar transactions and the absence of any conflict of interest that would preclude either Raymond James or Alston & Bird from providing disinterested advice to the Special Committee.

 

On May 21, 2009, the Special Committee met with Alston & Bird and Raymond James and instructed Raymond James to request that H.I.G. refine its bid. Specifically, the Special Committee instructed Raymond James to communicate to H.I.G. the Company’s requirement that H.I.G.’s letter of intent state a specific price per share and that the price be above the range previously proposed by H.I.G. in its letter dated May 20, 2009. The Special Committee also instructed Raymond James to instruct H.I.G. to refrain from communications with Parallex that would create any agreement or understanding between Parallex and H.I.G. with regard to the terms of a rollover investment, prior to the terms of that rollover investment being approved by our Board of Directors, because such an agreement or understanding would potentially present issues under the Delaware business combination statute. A representative of Raymond James requested that H.I.G. refrain from such communications with Parallex prior to approval by our Board of Directors, and H.I.G., in turn, acknowledged the request.

 

On May 22, 2009, Parallex provided H.I.G. with comments to H.I.G.’s letter outlining the proposed rollover arrangement in connection with the Company’s potential transaction.

 

On or around May 25, 2009, Raymond James spoke with H.I.G. and requested that H.I.G. refine its proposal to a specific price per share above $6.00.

 

On May 30, 2009, H.I.G. and Kirkland & Ellis LLP, H.I.G.’s outside legal counsel, provided Parallex with comments to our proposed merger agreement for purposes of facilitating discussion regarding H.I.G.’s proposed arrangement with Mr. Mirra.

 

On June 2, 2009, H.I.G. submitted a revised offer to acquire all of the outstanding Allion common stock for $5.50 per share in cash, contingent upon entering into a rollover arrangement with Mr. Mirra. H.I.G. also provided a summary of proposed revisions to the draft merger agreement.

 

On June 3, 2009, the Special Committee met with Raymond James and Alston & Bird to consider the refined final proposal from H.I.G. Following discussion, the Special Committee directed Raymond James to request that H.I.G. increase its final proposal to a price per share greater than $6.00.

After exchanging messages for a couple of days, on June 5, 2009, Raymond James spoke with H.I.G. and requested that H.I.G. increase its final proposal to a price greater than $6.00 per share.

 

On June 8, 2009, H.I.G. contacted Raymond James to submit a revised final proposal of $5.65 per share.

 

The Special Committee met on June 8 and June 9, 2009 with Raymond James and Alston & Bird to discuss H.I.G.’s revised final proposal. After discussion, the Special Committee directed Raymond James to request that H.I.G. increase its final offer to $6.00 per share.

 

On June 11, 2009, Raymond James spoke with H.I.G. and communicated the Special Committee’s revised proposal of $6.00 per share. During that call, H.I.G. responded to the Special Committee’s request by reaffirming its proposal of $5.65 per share.

 

On June 11, 2009, H.I.G. met with Mr. Mirra to discuss the Company’s business and the potential transaction between H.I.G. and the Company.

 

On June 14 and June 15, 2009, the Special Committee met with Raymond James and Alston & Bird to review the history of the transaction process and to discuss H.I.G.’s proposal of $5.65 per share in relation to select other recent transactions and the historical trading price of our stock. Representatives from Alston & Bird reviewed for the Special Committee H.I.G.’s summary of proposed revisions to the draft merger agreement. The Special Committee discussed these items, including H.I.G.’s request for an exclusivity period to negotiate a potential transaction with us, and determined to present the proposed transaction with H.I.G. to our full Board of Directors for consideration.

 

On June 16, 2009, H.I.G. submitted a revised proposal increasing its offer to $6.00 per share. H.I.G.’s proposal indicated an intention to finance a portion of the purchase price with debt financing. Although H.I.G. did not provide commitment letters for the required debt financing at this point, H.I.G. expressed confidence, after extensive discussions with several lenders, of its ability to raise the necessary debt financing to complete the transaction. The Special Committee met with Raymond James and Alston & Bird to consider the revised proposal, and, after discussion, determined to present H.I.G.’s revised proposal to our full Board of Directors for consideration. At a meeting of our Board of Directors on June 16, 2009, at which our Chief Financial Officer was present, Raymond James reviewed the terms of H.I.G.’s revised offer, and Alston & Bird reviewed the proposed rollover arrangement with Mr. Mirra, the proposed exclusivity period, and H.I.G.’s proposed revisions to the draft merger agreement. Raymond James also discussed with our Board of Directors the history of the proposed transaction process (including the fact that no potential buyer other than H.I.G. had submitted a final proposal), a summary of publicly available research analyst coverage, the historical trading price and volume of our stock, as well as the valuation implied by H.I.G.’s final proposal in comparison to selected companies and selected recent transactions. Following discussion, our Board of Directors authorized the Special Committee to negotiate and execute a letter of intent with H.I.G., including an exclusivity period to negotiate the potential transaction with us.

 

From June 17 through June 24, 2009, the Special Committee negotiated a letter of intent with H.I.G.

 

We executed a letter of intent with H.I.G. on June 24, 2009, providing for a price of $6.00 per share in cash and subject to an exclusivity period of 30 days with two 15-day extensions upon H.I.G.’s reaffirmation of its final proposal. On June 24, 2009, our Board of Directors also executed a written consent permitting H.I.G. to discuss with Mr. Mirra (and certain of his affiliates and associates) the terms upon which such persons would be willing to participate in a potential transaction between us and H.I.G., with such consent expressly conditioned upon the final arrangement being approved by our Board of Directors. Our Board of Directors also waived, for purposes of such discussions, the standstill provision contained in the Stockholders’ Agreement, dated April 4, 2008, between us and the former stockholders of Biomed America, Inc. named therein.

 

From June 25 through July 8, 2009, our Chairman and Chief Executive Officer, our Chief Financial Officer, our Vice Presidents of Pharmacy Operations and our Vice President of HIV Sales met with H.I.G. and its advisors to discuss our business for the purpose of H.I.G.’s due diligence review. Between June 26 and

August 8, 2009, we responded to H.I.G.’s additional due diligence requests through Raymond James and Alston & Bird.

 

During July and August 2009, H.I.G. had several conversations with Mr. Mirra regarding the status of H.I.G.’s due diligence review of our business and H.I.G.’s discussions with potential lenders regarding financing.

 

On July 17, 2009, H.I.G. provided Parallex with a term sheet outlining the proposed terms of the potential relationship with Parallex in connection with a potential transaction between H.I.G. and the Company. H.I.G. believed that requiring Parallex and the other rollover stockholders to exchange a portion of their shares of Allion common stock for equity interests in Parent as part of any potential merger would enable H.I.G. to pay a higher price per share to Allion’s other stockholders.

 

On July 21, 2009, the Special Committee met with Raymond James and Alston & Bird to review the status of H.I.G.’s due diligence review and meetings with Company management. The Special Committee also discussed H.I.G.’s final proposal of $6.00 in light of recent increases in the trading price of our stock.

 

On July 23, 2009, H.I.G. sent Raymond James a letter reaffirming its final proposal and extending the exclusivity period by 15 days, as set forth in the executed letter of intent between us and H.I.G on June 24, 2009.

 

Between July 27 and August 4, 2009, our Chairman and Chief Executive Officer and our Chief Financial Officer met with H.I.G. and its potential lending sources to review our business and to respond to the due diligence questions of those potential lenders.

 

On July 28, 2009, at a Special Committee meeting with Raymond James and Alston & Bird, Alston & Bird again reviewed the Special Committee’s fiduciary duties with respect to the consideration of a potential transaction with H.I.G. The Special Committee discussed the increased trading price of our stock in relation to H.I.G.’s final proposal of $6.00 per share.

 

On July 31, 2009, Alston & Bird received a revised draft of the proposed merger agreement from Kirkland & Ellis. Among the requested changes was a request from H.I.G. that its obligations to complete the transactions contemplated by the proposed merger agreement be conditioned upon the receipt of satisfactory financing, that the amount of the termination fee payable by the Company in various circumstances be increased from $5.0 million to $10.0 million and that the definition of “material adverse effect” used in the proposed merger agreement be revised to delete a number of exclusions previously proposed by the Company.

 

At a regularly scheduled meeting of our Board of Directors on August 3, 2009, with our Chief Financial Officer present, our Board of Directors received an update on the status of the potential transaction with H.I.G. Our Board of Directors discussed the recent trading price of our stock in comparison to H.I.G.’s final proposal of $6.00 per share and agreed to wait until the completion of lender presentations to determine how to proceed with the potential transaction.

 

On August 8, 2009, H.I.G. sent Raymond James a second letter reaffirming its final proposal and extending the exclusivity period by an additional 15 days to August 23, 2009, as set forth in the letter of intent between us and H.I.G dated June 24, 2009. Following expiration of the exclusivity period with H.I.G. on August 23, 2009, H.I.G. continued to provide Raymond James with updates on its efforts to obtain financing for the potential transaction. The Special Committee also continued to focus on the potential transaction with H.I.G. and did not contact other potential bidders, because it believed the Company had already contacted all reasonably likely potential buyers through the transaction process.

 

On August 31, 2009, the Special Committee met with Raymond James and Alston & Bird for an update on the status of H.I.G.’s discussions with potential lending sources and to discuss H.I.G.’s final proposal of $6.00 in comparison to the recent trading price of our stock. After discussion, the Special Committee directed Raymond James to request that H.I.G. provide us with its best and final offer prior to the meeting of our Board of Directors on September 1, 2009, as well as to discuss to with H.I.G. its expectations with respect to the proposed arrangement between H.I.G. and Mr. Mirra in connection with a potential transaction with us.

 

On September 1, 2009, H.I.G. submitted an oral revised proposal of $6.50 per share. During a Special Committee discussion on September 1, 2009, the Special Committee reviewed the revised proposal. After considering the apparent lack of financing for a potential transaction with H.I.G. indicated by H.I.G.’s failing to have provided financing commitments, the increase in the trading price of our stock and the continued positive performance of our business, the Special Committee determined to recommend to our full Board of Directors termination of negotiations with H.I.G. At a meeting of our full Board of Directors on September 1, 2009, at which our Chief Financial Officer was present, the Special Committee presented its recommendation that our Board of Directors terminate negotiations with H.I.G. Our Board of Directors discussed, among other things, the increased price proposal from H.I.G., the recent increased trading price of our stock, as well as our business prospects and the apparent lack of financing for a potential transaction with H.I.G. Based on these factors, our Board of Directors adopted the Special Committee recommendation to terminate negotiations with H.I.G. and directed our Chairman and Chief Executive Officer to notify H.I.G. of its decision.

 

Following the meeting on September 1, 2009, our Chairman and Chief Executive Officer informed H.I.G. of our Board of Directors’ decision to terminate negotiations. The Special Committee did not contact other potential bidders following the termination of negotiations for the reasons stated above.

 

On September 16, 2009, because H.I.G was unsure as to whether the Special Committee was still functioning following the termination of negotiations regarding a potential transaction, H.I.G. contacted our Chairman and Chief Executive Officer by telephone to request a meeting to discuss re-initiating negotiations regarding a potential transaction with the Company.

 

On September 17, 2009, H.I.G. met with our Chairman and Chief Executive Officer to discuss re-engaging in negotiations regarding a potential transaction. During that meeting, H.I.G. informed our Chairman and Chief Executive Officer that it was prepared to increase its proposal to $7.00 per share, that it had lending sources for the potential transaction ready to proceed, and that it was willing to eliminate any financing contingency. Our Chairman and Chief Executive Officer informed H.I.G. that he would communicate H.I.G.’s revised proposal of $7.00 per share to our Board of Directors. Also on September 17, 2009, H.I.G. met with Parallex to discuss the status of the potential transaction with us and to inquire whether Parallex would be willing to explore participating in the rollover transaction if H.I.G. revised its final proposal to $7.00 per share. Parallex informed H.I.G. that it would be willing to explore the possibility of participating in the rollover transaction if H.I.G. revised its final proposal to $7.00 per share.

 

On September 18, 2009, our Chairman and Chief Executive Officer notified Alston & Bird of his discussions with H.I.G. and requested that the Special Committee convene a meeting for him to update the Special Committee on his discussions with H.I.G. Later that day, the Special Committee met with our Chairman and Chief Executive Officer and Alston & Bird to receive an update on his discussions with H.I.G.

 

On September 18, 2009, H.I.G. provided Parallex with a revised draft of the term sheet outlining H.I.G.’s proposed relationship with Parallex in connection with a potential transaction between H.I.G. and the Company. Later that day, Parallex’s advisors provided H.I.G. with proposed revisions to the draft term sheet.

 

On September 20 2009, H.I.G. accepted Parallex’s proposed revisions to the draft term sheet outlining H.I.G.’s proposed relationship with Parallex in connection with a potential transaction between H.I.G. and the Company.

 

On September 21, 2009, H.I.G. submitted a letter of intent to Raymond James to purchase all of the outstanding Allion stock at $7.00 per share in cash, with no exclusivity period.

 

On September 21, 2009, the Special Committee met with Raymond James and Alston & Bird to discuss H.I.G.’s revised final proposal and letter of intent. Alston & Bird again outlined the Special Committee’s fiduciary duties with respect to consideration of a potential transaction. On September 22, 2009, the Special Committee met again with Raymond James and Alston & Bird to review H.I.G.’s revised proposal. Raymond James discussed with the Special Committee the history of the potential transaction process, the valuation implied by the revised H.I.G. proposal in comparison to selected companies and selected recent transactions, and the historical trading price and volume of our stock. After discussion, the Special Committee resolved to recommend to our full Board of Directors that we proceed to negotiate a potential transaction with H.I.G.

On September 23, 2009, our full Board of Directors met, with our Chief Financial Officer present, to discuss the revised final proposal and letter of intent from H.I.G. Raymond James discussed the history of the potential transaction process, a summary of the various preliminary proposals received, a comparison of selected transactions, and the historical trading price and volume of our stock. The Special Committee recommended to our full Board of Directors that we proceed to negotiate a potential transaction with H.I.G. A representative of Alston & Bird outlined our directors’ fiduciary duties with respect to consideration of a potential transaction and after discussion of the terms of H.I.G.’s offer, our Board of Directors adopted the Special Committee’s recommendation.

 

During September and October 2009, H.I.G. provided Parallex with various documents outlining the proposed economic relationship between H.I.G. and Parallex in connection with a proposed transaction between H.I.G. and the Company.

 

On September 26, 2009, Alston & Bird provided a revised draft of a proposed merger agreement to Kirkland & Ellis. The revised draft deleted any financing contingency and proposed that H.I.G.’s liability to the Company would be limited to the payment of a $7.5 million reverse termination fee in the event that H.I.G. was unable to obtain financing to complete the transaction, but did not otherwise limit the liability of H.I.G. in the event that it failed to complete the transaction. The draft also provided for the payment of a $7.5 million termination fee by the Company in certain instances and re-proposed a number of the deleted exceptions to the definition of “material adverse change, including those relating to reimbursement and health care reform.

 

On September 27, 2009, for the purpose of facilitating discussion among the parties, H.I.G. provided Parallex’s advisors with initial drafts of an exchange agreement, restrictive covenant agreement, stockholders agreement and registration agreement.

 

On October 1, 2009, Kirkland & Ellis provided Alston & Bird with a list of key open items with regard to the proposed merger agreement and H.I.G.’s position with regard to these items. Kirkland & Ellis indicated that a $7.5 million reverse termination fee was acceptable, but further proposed that this reverse termination fee be the Company’s sole remedy if H.I.G. failed to complete the transaction for any reason or otherwise breached the merger agreement. Kirkland & Ellis further indicated that H.I.G. would agree to a $7.5 million termination fee payable by the Company.

 

On October 1, 2009, Fox Rothschild LLP, legal counsel to the rollover stockholders, provided revisions to the exchange agreement, restrictive covenant agreement, stockholders agreement and registration agreement to Kirkland & Ellis. From October 1 through October 9, 2009, Fox Rothschild and Kirkland & Ellis negotiated and exchanged revised drafts of the exchange agreement, restrictive covenant agreement, stockholders agreement and registration agreement.

 

From October 2 through October 18, 2009, Alston & Bird, Raymond James, Kirkland & Ellis and H.I.G. had several conversations regarding the proposed merger agreement and negotiated the terms of the potential transaction, and we responded to additional due diligence requests from H.I.G., its advisors and its potential lenders through Raymond James and Alston & Bird.

 

On October 2 and October 7, 2009, the Special Committee met informally with Raymond James and Alston & Bird to discuss the outstanding issues related to the negotiation of the proposed merger agreement with H.I.G. The Special Committee also invited Flint Besecker to participate in this discussion because of Mr. Besecker’s extensive experience in corporate finance matters. These conversations focused primarily on the events that would trigger expense reimbursement obligations or the payment of a termination fee by the Company and certain proposed limitations on the liability of H.I.G. in the event of a breach of the merger agreement. The Special Committee also discussed the availability of financing for the potential transaction.

 

On October 8, 2009, the Special Committee again met informally with Flint Besecker, Raymond James and Alston & Bird. The Special Committee discussed H.I.G.’s rejection of the Special Committee’s proposal that the Company’s remedy for failure to close the transaction be limited to the $7.5 million reverse termination fee only in the event of a failed financing.

On October 9, 2009, the Special Committee met formally to consider its response to H.I.G regarding the circumstances allowing for payment of the reverse termination fee. The Special Committee discussed its desire to maintain the $7.00 per share purchase price for our stockholders in light of recent declines in the trading price of our stock. After discussion and in an effort to preserve the $7.00 per share purchase price, the Special Committee determined to accept H.I.G.’s position limiting the Company’s remedies for a failure to complete the transaction or breaches of the merger agreement to the reverse termination fee of $7.5 million, provided that H.I.G. agree to expediently execute a merger agreement.

 

On October 9, 2009, Kirkland & Ellis provided Fox Rothschild with initial drafts of a voting agreement and the amended and restated certificate of incorporation of Parent, outlining the terms of the proposed equity to be received by the rollover stockholders pursuant to the exchange agreement.

 

On October 10, 2009, Alston & Bird provided Kirkland & Ellis with a revised draft of the proposed merger agreement, indicating that limiting the remedies of the Company for a failure to complete the transaction or breaches of the merger agreement to a reverse termination fee of $7.5 million would be acceptable.

 

On October 11, 2009, Kirkland & Ellis provided Fox Rothschild with revised drafts of the exchange agreement, restrictive covenant agreement, stockholders agreement and registration agreement.

 

Between October 12 and October 16, 2009, Kirkland & Ellis and Fox Rothschild negotiated and exchanged revised drafts of the exchange agreement, restrictive covenant agreement, stockholders agreement, registration agreement, voting agreement and amended and restated certificate of incorporation of Parent.

 

On October 13, 2009, the Special Committee met with Flint Besecker, Raymond James and Alston & Bird to discuss the outstanding issues related to negotiation of the proposed merger agreement with H.I.G. The Special Committee discussed its concerns regarding the status of H.I.G.’s financing commitments, including the apparent lack of fully committed financing in relation to H.I.G.’s termination rights in the draft merger agreement. The Special Committee directed Raymond James to discuss with H.I.G. the status of its financing commitments, but to otherwise wait until receipt of H.I.G.’s revised draft of the proposed merger agreement to respond to the other outstanding issues.

 

On October 14, 2009, H.I.G. informed Parallex of a proposed reduction by H.I.G. of its price per share to $6.60, and Parallex agreed to continue to explore the possibilty of participating in the rollover transaction at the reduced price.

 

On October 14, 2009, H.I.G. submitted a revised oral proposal to Raymond James of $6.60 per share in cash, citing the lower trading price of our stock, the reimbursement risks and risks associated with health care reform faced by our business, which risks were also factors contributing to a lower trading price of our stock.

 

On October 15, 2009, the Special Committee met with Raymond James and Alston & Bird to discuss H.I.G.’s revised proposal of $6.60 per share. The Special Committee discussed the revised proposal in light of recent declines in the trading price of our stock, as well as the nearly final nature of negotiations with H.I.G. on the remaining issues, the expectation of executed financing commitment letters promptly for the potential transaction, H.I.G.’s agreement to increase its equity commitment to the extent debt commitment letters could not be finalized prior to signing the merger agreement, and the understanding that Parallex continued to be willing to explore the possibility of participating in the rollover transaction. After discussion, the Special Committee directed Raymond James to request that H.I.G. increase its proposed price to $6.80 per share.

 

Following the Special Committee meeting, on October 15, 2009, Raymond James discussed with H.I.G. the Special Committee’s revised offer of $6.80 per share, which H.I.G. rejected. H.I.G. indicated to Raymond James that it remained firm at $6.60 per share.

 

At a second meeting of the Special Committee on October 15, 2009, following Raymond James’s discussion with H.I.G., the Special Committee discussed proposing revisions to the amount and structure of the reverse termination fee and the definition of material adverse change under the merger agreement, as a result of H.I.G.’s proposed price of $6.60 per share. At the conclusion of the meeting, the Special Committee

resolved to accept H.I.G.’s proposal of $6.60 per share in exchange for the revisions to the proposed merger agreement described below and a rapid conclusion to negotiations with H.I.G.

 

On October 15, 2009, representatives of Raymond James, at the direction of the Special Committee, communicated to H.I.G. that a price of $6.60 per share would be acceptable in the event that the reverse termination fee was increased from $7.5 million to $12.0 million and the material adverse change definition excluded any risks related to changes in reimbursement rates, coverage limitations, the methods of calculating reimbursement rates, and industry pricing benchmarks. H.I.G. responded by proposing a $7.5 million reverse termination fee in the event that H.I.G. was unable to obtain financing to complete the proposed transaction and a $10.0 million reverse termination fee in the event that H.I.G. did not complete the proposed transaction for any other reason, and agreeing to the requested definition of material adverse change.

 

From October 15 through 18, 2009, Alston & Bird and Kirkland & Ellis continued to negotiate the terms of the proposed merger agreement.

 

On October 16, 2009, current drafts of the revised merger agreement and a background presentation from Raymond James were circulated to our Board of Directors for review. Later that day, our Board of Directors met to review the draft of the proposed merger agreement, the other terms of the potential transaction with H.I.G., the status of H.I.G.’s financing commitments, and the terms of the proposed rollover transaction. Raymond James made a presentation discussing the history of the potential transaction process, a summary of the various preliminary proposals received, a comparison of selected transactions, and the historical trading price and volume of our stock, and Alston & Bird summarized the material terms of the draft merger agreement.

 

On October 18, 2009, the Special Committee met with Raymond James and Alston & Bird to consider the proposed final terms of the merger agreement and the proposed transaction with H.I.G. Alston & Bird summarized the material terms of the final draft merger agreement and described the revisions to the merger agreement since the last draft of the merger agreement reviewed by our Board of Directors on October 16, 2009. Raymond James discussed the history and results of the transaction process and the history of the discussions with H.I.G. Raymond James also provided a presentation, which was generally identical to the presentation provided on October 16, 2009, that discussed the historical trading price and volume of our stock, trading multiples for selected public companies, transaction multiples for selected recent transactions, and premiums paid in other selected transactions. Following discussion, the Special Committee resolved to recommend that our full Board of Directors approve the final terms of the proposed merger agreement and to approve the proposed transaction with H.I.G.

 

Following the Special Committee meeting, on October 18, 2009, our full Board of Directors, with our Chief Financial Officer present, met to review the proposed final terms of the transaction with H.I.G., including the final proposed merger agreement. Alston & Bird described the revisions to the merger agreement since the last draft of the merger agreement reviewed by our Board of Directors on October 16, 2009. Raymond James discussed the history and results of the transaction process and the history of the discussions with H.I.G. Raymond James also discussed the historical trading price and volume of our stock, trading multiples for selected public companies, transaction multiples for selected recent transactions, and premiums paid in other selected transactions. Raymond James also delivered its oral opinion to our Board of Directors, which it subsequently confirmed in writing, that the merger consideration to be received by our stockholders, other than the rollover stockholders, Parent, Merger Sub and their respective affiliates, was fair, from a financial point of view, to such stockholders. Following the recommendation of the Special Committee, our full Board of Directors unanimously approved the final terms of the proposed merger agreement and the proposed transaction with H.I.G.

 

On October 18, 2009, we executed and delivered the merger agreement and limited guarantee with H.I.G., and H.I.G. and the rollover stockholders executed and delivered the exchange agreements, restrictive covenant agreements, stockholders agreement, registration agreement, and voting agreements. We issued a press release announcing the transaction following execution of the various transaction documents on October 18, 2009.

 

Both the Special Committee and our Board of Directors have determined that the merger agreement and the merger are fair to and in the best interest of the Company and our unaffiliated stockholders. The Special Committee unanimously recommended that our Board of Directors:

 

 

After considering the recommendation of the Special Committee, our Board of Directors unanimously approved the merger agreement, declared the merger agreement and the merger to be advisable, and resolved to recommend to Allion’s stockholders that the stockholders approve the merger agreement.

 

The merger agreement was unanimously approved by our full Board of Directors at a meeting called for that purpose. As a result, the merger agreement was unanimously approved by the non-employee directors of the Company, which excludes Mr. Moran, who serves as our President and Chief Executive Officer in addition to Chairman of the Board. Furthermore, the merger agreement was unanimously approved by the disinterested directors of the Company, which excludes Mr. Moran, as well as Mr. Miller and Mr. Stepanuk, both of whom serve on our Board of Directors as designees of the rollover stockholders and certain other holders of Allion common stock.

 

The Special Committee and our Board of Directors considered a number of factors in determining to recommend that our stockholders adopt the merger agreement, as more fully described above under “— Background of the Merger” and below under “— Fairness of the Merger; Reasons for the Recommendation of the Special Committee and our Board of Directors.” Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

 

In reaching its conclusion regarding the fairness of the merger agreement to our unaffiliated stockholders and its decision to recommend that our Board of Directors approve the merger agreement, the Special Committee considered the following factors, each of which the Special Committee believes supported its conclusion, but which are not listed in any relative order of importance:

 

 

 

 

 

 

 

In addition, the Special Committee believed that sufficient procedural safeguards were and are present to ensure the fairness of the merger to our unaffiliated stockholders and to permit the Special Committee to represent effectively the interests of our unaffiliated stockholders. These procedural safeguards include the following, which are not listed in any relative order of importance:

 

 

Given the procedural safeguards described above, the Special Committee, which consisted solely of non-employee directors, did not consider it necessary to retain an unaffiliated representative to act solely on behalf of our unaffiliated stockholders for purposes of negotiating the terms of the merger or preparing a report concerning the fairness of the merger. Also as a result of these procedural safeguards, the Special Committee did not consider it necessary to require the approval of at least a majority of our unaffiliated stockholders. Nonetheless, the Special Committee believes that the merger is fair to our unaffiliated stockholders because the Special Committee was charged with representing the interests of such unaffiliated stockholders, it was advised by independent financial and legal advisors during its negotiation of the merger agreement and it was actively involved in extended and numerous deliberations and negotiations regarding the merger on behalf of our unaffiliated stockholders.

 

The Special Committee also considered a variety of potentially negative factors concerning the merger agreement and the merger, including the following factors, which are not listed in any relative order of importance:

 

 

 

 

 

 

 

 

 

In addition, the Special Committee was aware that the rollover stockholders would be required to enter into exchange agreements with Parent obligating the rollover stockholders to exchange a substantial portion of their shares of Allion common stock for equity interests in Parent in connection with the merger. Although the Special Committee was aware of the interests of the rollover stockholders, the Special Committee’s primary concern was to ensure that the per share merger consideration and other terms of the merger agreement were both procedurally and substantively fair to and in the best interest of the Company and our unaffiliated stockholders. See “— Interests of Certain Persons in the Merger” beginning on page 54, below.

 

The Special Committee did not consider the liquidation value of the Company’s assets because it considers the Company to be a viable going concern business and views the trading history of Allion common stock as an indication of the Company’s value as such. The Special Committee believes that the Company’s liquidation value would be significantly lower than the Company’s value as a viable going concern and that, due to the fact that the Company is being sold as a going concern, the Company’s liquidation value is irrelevant to a determination as to whether the merger is fair to the Company’s unaffiliated stockholders. Further, the Special Committee did not consider the Company’s net book value of $6.64 per share as of September 30, 2009 as a factor because it believed that net book value is an accounting concept that is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs.

 

In the course of reaching its conclusion regarding the fairness of the merger to the stockholders and its decision to approve the merger agreement, the Special Committee adopted the analyses and the opinion presented by Raymond James to our Board of Directors. These analyses included, among others, an analysis of the historical trading performance of the Company’s stock, and analyses relating to potential transaction values for the Company, including a selected companies analysis, a selected transactions analysis and a premiums paid analysis. These analyses are summarized below under “— Opinion of Allion’s Financial Advisor, Raymond James & Associates, Inc.” Although the opinion of Raymond James addresses the fairness, from a financial point of view, of the consideration to be received by our stockholders (other than the rollover stockholders, Parent, Merger Sub and their affiliates) pursuant to the merger agreement, the Special Committee was nonetheless able to rely on Raymond James’s opinion to reach a determination as to the fairness of the merger agreement to our unaffiliated stockholders. Raymond James’s opinion addresses the fairness of the consideration to be received by all of our unaffiliated stockholders, as none of Parent, Merger Sub or their affiliates are considered unaffiliated stockholders, and even though Raymond James’s opinion also addresses the fairness of the consideration to certain of our affiliated stockholders, including our directors and executive officers, such affiliated stockholders will receive the same per share consideration pursuant to the merger agreement as our unaffiliated stockholders and will not receive any other material benefit.

 

The foregoing discussion of the information and factors considered by the Special Committee is not intended to be exhaustive, but includes the material factors considered by the Special Committee. In view of the wide variety of factors considered by the Special Committee in evaluating the merger agreement and the merger, the Special Committee did not find it practicable, and did not attempt to, quantify, rank or otherwise assign relative weights to the foregoing factors in reaching its conclusion. In addition, individual members of the Special Committee may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Special Committee approved the merger agreement and recommended it to our Board of Directors based upon the totality of the information it considered.

 

In reaching its determination that the merger agreement and the merger are advisable, substantively and procedurally fair to and in the best interest of the Company and our unaffiliated stockholders, our Board of Directors determined that the analyses of the Special Committee of the merger consideration of $6.60 per

share were reasonable and expressly adopted the analyses and conclusions of the Special Committee. In determining the reasonableness of the Special Committee’s analysis, our Board of Directors considered and relied upon the following factors, among others:

 

 

Our Board of Directors also believes that sufficient procedural safeguards were present to ensure the fairness of the transaction and to permit the Special Committee to represent effectively the interests of Allion’s unaffiliated stockholders. Our Board of Directors reached this conclusion based on the following factors, among others:

 

 

In light of the procedural protections described above, our Board of Directors, including each of the independent directors, did not consider it necessary to require a separate affirmative vote of a majority of our unaffiliated stockholders even though the rollover stockholders hold approximately 41.1% of Allion common stock and accordingly, the affirmative vote of approximately 8.9% of the additional outstanding shares of Allion common stock, which represents approximately 15% of our unaffiliated stockholders, is necessary in order to adopt the merger agreement. In addition, given the procedural safeguards described above, our Board of Directors did not consider it necessary to retain an unaffiliated representative to act solely on behalf of our unaffiliated stockholders for purposes of negotiating the terms of the merger or preparing a report concerning the fairness of the transaction.

 

Our Board of Directors also considered the interests certain executive officers and directors of the Company may have with respect to the merger in addition to their interests as stockholders generally, as described below in “— Interests of Certain Persons in the Merger.”

 

The foregoing discussion of the information and factors considered by our Board of Directors is not intended to be exhaustive, but includes the material factors considered by our Board of Directors. In view of

the wide variety of factors considered by our Board of Directors in evaluating the merger agreement and the merger, our Board of Directors did not find it practicable, and did not attempt to, quantify, rank or otherwise assign relative weights to the foregoing factors in reaching its conclusion. In addition, individual members of our Board of Directors may have given different weights to different factors and may have viewed some factors more positively or negatively than others. Our Board of Directors approved the merger agreement and recommends it to Allion’s stockholders based upon the totality of the information it considered.

 

Based in part upon the recommendation of the Special Committee, our Board of Directors voted to approve the merger agreement and resolved to recommend that you vote “FOR” the adoption of the merger agreement. In making their determination as to the fairness of the proposed merger to the Company and our stockholders, the Special Committee and our Board of Directors were not aware of any firm offers during the prior two years by any person for the merger or consolidation of Allion with another company, the sale or transfer of all or substantially all of Allion’s assets or a purchase of Allion’s assets that would enable the holder to exercise control of Allion.

 

Based on the factors outlined above, our Board of Directors determined that the merger agreement and the transactions contemplated thereby are fair to and in the best interest of the Company and our unaffiliated stockholders. Therefore, our Board of Directors recommends that you vote “FOR” the adoption of the merger agreement.

 

The purpose of the merger for us is to enable our unaffiliated stockholders to immediately realize the value of their investment in the Company through their receipt of the per share merger consideration of $6.60 in cash, without interest, representing a premium of approximately 30.2% over the volume-weighted average price of Allion common stock for the five days prior to announcement of the merger.

 

For Merger Sub, the purpose of the merger is to effectuate the transactions contemplated by the merger agreement. For the other members of the H.I.G. Buying Group, the purpose of the merger is to allow them to acquire control of Allion and bear the rewards and risks of such ownership of Allion after shares of Allion common stock cease to be publicly traded. The H.I.G. Buying Group did not consider any alternatives for achieving these purposes. The transaction has been structured as a cash merger in order to provide our unaffiliated stockholders with cash for their shares of Allion common stock and to provide a prompt and orderly transfer of ownership of Allion in a single step, without the necessity of financing separate purchases of Allion common stock in a tender offer and implementing a second-step merger to acquire any shares of common stock not tendered into any such tender offer, and without incurring any additional transaction costs associated with such activities. The H.I.G. Buying Group has undertaken to pursue the transaction at this time in light of the opportunities they perceive to strengthen the Company’s competitive position, strategy and financial performance under a new form of ownership.

 

The purpose of the Parallex Group for engaging in the merger is (i) to receive cash for the portion of its shares of Allion common stock that will not be surrendered to Parent and to realize a premium to the market price for such shares based on the closing price of Allion common stock on October 16, 2009, (ii) to receive the principal plus accrued interest on promissory notes issued to it by the Company, the maturity of which will accelerate at the effective time of the merger, and (iii) to retain an indirect equity interest in Allion and to continue bearing the rewards and risks of such ownership of Allion after shares of Allion common stock cease to be publicly traded. In addition, as a condition to entering the merger agreement, H.I.G. required that as part of the equity financing for the merger, Parallex and the other rollover stockholders make an equity investment in Parent by surrendering a portion of their shares of Allion common stock to Parent and enter into restrictive covenant agreements restricting their ability to engage in certain activities competitive with Allion or Parent after the merger.

 

Under applicable SEC rules, the members of the H.I.G. Buying Group are engaged in a “going private” transaction and therefore required to express their beliefs as to the fairness of the merger to Allion’s unaffiliated stockholders. For purposes of this Proxy Statement, the members of the “H.I.G. Buying Group”

are Parent, Merger Sub, H.I.G. Capital, L.L.C., H.I.G. Healthcare, LLC, H.I.G. Bayside Debt & LBO Fund II, L.P., H.I.G. Bayside Advisors II, LLC, H.I.G.-GPII, Inc., Sami Mnaymneh and Anthony Tamer. The members of the H.I.G. Buying Group are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The H.I.G. Buying Group’s views as to fairness of the proposed merger should not be construed as a recommendation to any stockholder of Allion as to how such stockholder should vote on the proposal to adopt the merger agreement.

 

The H.I.G. Buying Group believes that the merger is both substantively and procedurally fair to Allion’s unaffiliated stockholders. However, none of the members of the H.I.G. Buying Group has undertaken any formal evaluation of the fairness of the merger to Allion’s unaffiliated stockholders or engaged a financial advisor for such purpose. Moreover, none of the members of the H.I.G. Buying Group participated in the deliberations of the Special Committee or received advice from the Company’s legal or financial advisors in connection with the merger.

 

While the members of the H.I.G. Buying Group believe that the merger is substantively and procedurally fair to Allion’s unaffiliated stockholders, they attempted to negotiate the terms of a transaction that would be most favorable to them and, accordingly, did not negotiate the merger agreement with the goal of obtaining terms that were fair to Allion’s unaffiliated stockholders. None of the members of the H.I.G. Buying Group believes that it has or had any fiduciary duty to Allion or its stockholders, including with respect to the merger agreement and its terms and conditions. Allion and its unaffiliated stockholders were represented by an independent Special Committee that negotiated on their behalf with H.I.G., Parent and Merger Sub, each with the assistance of its respective advisors, as described above in “— Fairness of the Merger; Reasons for the Recommendation of the Special Committee and our Board of Directors.”

 

The belief of the members of the H.I.G. Buying Group that the merger is substantively and procedurally fair to the unaffiliated stockholders of Allion is based on the following factors, among others:

 

 

 

The H.I.G. Buying Group considered each of the foregoing factors in determining the fairness of the merger to Allion’s unaffiliated stockholders. In light of the factors described above and the fact that the use of a Special Committee of independent directors is a mechanism well recognized to ensure fairness in transactions of this type, the H.I.G. Buying Group believes that the merger is procedurally fair to Allion’s unaffiliated stockholders despite the fact that the merger agreement does not require adoption by a majority of the unaffiliated holders of Allion common stock and the fact that Allion’s Special Committee did not retain an unaffiliated representative to act solely on behalf of its unaffiliated stockholders.

 

The H.I.G. Buying Group did not consider Allion’s net book value, which is an accounting concept, to be a factor in determining the substantive fairness of the transaction to Allion’s unaffiliated stockholders because they believed that net book value is not a material indicator of the value of Allion’s equity but rather an indicator of historical costs. The H.I.G. Buying Group also did not consider the liquidation value of Allion’s assets as indicative of Allion’s value primarily because of their belief that the liquidation value would be significantly lower than Allion’s value as an ongoing business and that, due to the fact that Allion is being sold as an ongoing business, the liquidation value is irrelevant to a determination as to whether the merger is fair to the unaffiliated stockholders of Allion. The H.I.G. Buying Group did not establish a pre-merger going concern value for Allion’s equity as a public company for the purposes of determining the fairness of the merger consideration to Allion’s unaffiliated stockholders because, following the merger, Allion will have a significantly different capital structure, which will result in different opportunities and risks for the business as a highly leveraged private company.

 

In making their determination as to the fairness of the proposed merger to Allion’s unaffiliated stockholders, the H.I.G. Buying Group was not aware of any firm offers during the prior two years by any person for the merger or consolidation of Allion with another company, the sale or transfer of all or substantially all of Allion’s assets or a purchase of Allion’s common stock that would enable the holder to exercise control of Allion.

 

The H.I.G. Buying Group’s view as to the fairness of the merger to Allion’s unaffiliated stockholders is not a recommendation as to how any such stockholder should vote on the merger agreement. The foregoing discussion of the information and factors considered by the H.I.G. Buying Group, while not exhaustive, is believed to include all material factors considered by the H.I.G. Buying Group. The H.I.G. Buying Group did not find it practicable to assign, nor did they assign, relative weights to the individual factors considered in reaching their conclusion as to the fairness of the merger to such stockholders. The H.I.G. Buying Group believes that these factors provide a reasonable basis for its position that the merger is fair to Allion’s unaffiliated stockholders.

 

Under applicable SEC rules, the Parallex Group is engaged in a “going private” transaction and therefore required to express its belief as to the fairness of the merger to Allion’s unaffiliated stockholders. The Parallex Group is making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The Parallex Group’s view as to fairness of the proposed merger should not be construed as a recommendation to any stockholder of Allion as to how such stockholder should vote on the proposal to adopt the merger agreement.

 

The Parallex Group believes that the merger is both substantively and procedurally fair to Allion’s unaffiliated stockholders. The Parallex Group has expressly adopted the analyses of Raymond James in their determination of the substantive fairness of the merger consideration to Allion’s unaffiliated stockholders. However, the Parallex Group has not undertaken any formal evaluation of the fairness of the merger to Allion’s unaffiliated stockholders or engaged a financial advisor for such purpose. The Parallex Group did not consider Allion’s historic market prices, net book value, going concern value or liquidation value in determining the fairness of the transaction to Allion’s unaffiliated stockholders. Moreover, the Parallex Group did not participate in the deliberations of the Special Committee or receive advice from the Company’s legal or financial advisors in connection with the merger and was not involved in any negotiations regarding the merger, the merger agreement or the per share merger consideration. The Parallex Group also was not involved in the negotiations between H.I.G. and the Special Committee with respect to the merger, the merger agreement or the per share merger consideration. The Parallex Group has not been given access to any of the analyses undertaken by the H.I.G. Buying Group, the Special Committee or the Allion Board of Directors in valuing Allion. Mr. Miller and Mr. Stepanuk currently serve as the designees of the rollover stockholders, together with certain other holders of Allion common stock, to Allion’s Board of Directors. Mr. Miller and Mr. Stepanuk, each in his capacity as a member of Allion’s Board of Directors, participated in the deliberations of the Board of Directors in approving the merger agreement and the merger, although they were not members of, and did not participate in the deliberations of, the Special Committee. Following the unanimous approval of the merger agreement by all of Allion’s independent directors, the merger agreement was unanimously approved by Allion’s full Board of Directors.

 

The belief of the Parallex Group that the merger is fair to the unaffiliated stockholders of Allion is based on the following factors, among others:

 

 

 

The Parallex Group considered each of the foregoing factors in determining the fairness of the merger to Allion’s unaffiliated stockholders. In light of the factors described above and the fact that the use of a Special Committee of independent directors is a mechanism well recognized to ensure fairness in transactions of this type, the Parallex Group believes that the merger is procedurally fair to Allion’s unaffiliated stockholders despite the fact that Allion did not retain an unaffiliated representative to act solely on behalf of its unaffiliated stockholders. The Parallex Group also believes that the merger is procedurally fair to Allion’s unaffiliated stockholders despite the fact that Mr. Miller and Mr. Stepanuk, each in his capacity as a member of Allion’s Board of Directors, participated in the deliberations of the Board of Directors in approving the merger agreement and the merger. In this regard, the Parallex Group notes that all of the other members of the Board of Directors who voted on the transaction approved the merger agreement.

 

In making its determination as to the fairness of the proposed merger to Allion’s unaffiliated stockholders, the Parallex Group was not aware of any firm offers during the prior two years by any person for the merger or consolidation of Allion with another company, the sale or transfer of all or substantially all of Allion’s assets or a purchase of Allion’s common stock that would enable the holder to exercise control of Allion.

 

The Parallex Group’s view as to the fairness of the merger to Allion’s unaffiliated stockholders is not a recommendation as to how any such stockholder should vote on the merger. The foregoing discussion of the information and factors considered by the Parallex Group, while not exhaustive, includes all material factors considered by the Parallex Group. The Parallex Group did not find it practicable to assign, nor did it assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the merger

to Allion’s unaffiliated stockholders. Rather, the fairness determinations were made after consideration of the totality of the information presented to it.

 

Pursuant to an engagement letter dated January 29, 2009, we retained Raymond James as our exclusive financial advisor in connection with the proposed merger. At the meeting of our Board of Directors on October 18, 2009, Raymond James delivered to our Board of Directors its opinion that, as of such date and based upon, and subject to, various qualifications and assumptions described with respect to its opinion, the consideration to be received in the proposed merger by holders of Allion common stock (other than the rollover stockholders, Parent and Merger Sub, and their respective affiliates) was fair, from a financial point of view, to such holders .

 

The full text of the written opinion of Raymond James, dated October 18, 2009, which sets forth assumptions made, matters considered, and limits on the scope of review undertaken, is attached as Appendix B to this Proxy Statement. Raymond James’s opinion, which is addressed to our Board of Directors, is directed only to the fairness, from a financial point of view, to the holders of Allion common stock (other than the rollover stockholders, Parent, Merger Sub and their respective affiliates), of the consideration to be received in the proposed merger by such holders. Raymond James expressed no opinion on the relative merits of the merger compared to any alternative that might be available to Allion or the terms of the merger agreement. Raymond James’s opinion does not constitute a recommendation to our Board of Directors or any holder of Allion common stock as to how to vote with respect to the proposed merger or otherwise and does not address any other aspect of the proposed merger or any related transaction. Raymond James’s opinion does not address the fairness of the proposed merger to, or any consideration that may be received by, the holders of any other class of securities, creditors or constituencies of Allion, including the rollover stockholders, Parent or Merger Sub, or the underlying decision by Allion or our Board of Directors to pursue the proposed merger. Raymond James expressed no opinion as to the price at which Allion common stock or any other securities would trade at any future time. In addition, Raymond James did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by our officers, directors, or employees, or any class of such persons, in connection with or as a result of the merger. Raymond James’s opinion was authorized for issuance by the Fairness Opinion Committee of Raymond James. The summary of the opinion of Raymond James set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. Holders of Allion common stock are urged to read this opinion in its entirety.

 

In arriving at its opinion, Raymond James, among other things:

 

 

 

Raymond James did not assume responsibility for independent verification of, and did not independently verify, any information, whether publicly available or furnished to it by us or any other party, including, without limitation, any financial information, forecasts, or projections considered in connection with the rendering of its opinion. For purposes of its opinion, Raymond James assumed and relied upon, with permission from our Board of Directors, the accuracy and completeness of all such information. Raymond James did not conduct a physical inspection of any of the properties or assets, and did not prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise). With respect to financial forecasts and estimates, along with other information and data provided to or otherwise reviewed by or discussed with Raymond James, Raymond James (i) assumed, with permission from our Board of Directors, that such forecasts, estimates and other such information and data had been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management and (ii) relied upon each party to advise Raymond James promptly if any information previously provided became inaccurate or was required to be updated during the period of its review.

 

In rendering its opinion, Raymond James assumed that the merger would be consummated on the terms described in the merger agreement. Furthermore, Raymond James assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement, and that all conditions to the consummation of the merger will be satisfied without being waived. Raymond James also assumed that all material governmental, regulatory, or other consents and approvals will be obtained and that, in the course of obtaining any necessary governmental, regulatory, or other consents and approvals necessary for the consummation of the merger, as contemplated by the merger agreement, no restrictions will be imposed or amendments, modifications, or waivers made that would have any material adverse effect on Allion. Raymond James expressed no opinion regarding the structure or tax consequences of the merger, or the availability or advisability of any alternatives to the merger.

 

Raymond James’s opinion is necessarily based on economic, market, and other conditions and the information made available to Raymond James as of October 18, 2009. It should be understood that subsequent developments could affect Raymond James’s opinion and that Raymond James does not have any obligation to reaffirm its opinion.

 

Summary of Financial Analyses Conducted by Raymond James

 

The following is a summary of the material financial analyses underlying Raymond James’s opinion, dated October 18, 2009, delivered to our Board of Directors in connection with the merger at a meeting of the our Board of Directors on October 18, 2009. The order of the analyses described below does not represent the relative importance or weight given to those analyses by Raymond James or by our Board of Directors. Considering such data without considering the full narrative description of the financial analyses could create a misleading or incomplete view of Raymond James’s financial analyses.

 

In arriving at its opinion, Raymond James did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering all analyses, would create an incomplete view of the process underlying its opinion.

 

The following summarizes the material financial analyses presented by Raymond James to our Board of Directors at its meeting on October 18, 2009 and considered by Raymond James in rendering its opinion. The

description below explains Raymond James’s methodology for evaluating the consideration to be reviewed in the proposed merger. No company or transaction used in certain of the analyses described below was deemed to be directly comparable to Allion or the merger, and the summary set forth below does not purport to be a complete description of the analyses or data presented by Raymond James. In presenting their financial analyses to our Board of Directors, Raymond James included, along with other information, the mean and median values resulting from their analyses of other companies and transactions, which mean and median values are included in the descriptions below. However, Raymond James included the mean and median values for informational purposes only, to illustrate the dispersion of the data within the corresponding range, and noted that they did not consider those values alone dispositive of whether a particular analysis supported the fairness of the consideration to be paid in the merger, particularly where the multiple implied by the consideration to be paid in the merger otherwise fell within the high to low range of multiples for the analysis.

 

Historical Stock Trading Analysis

 

Raymond James analyzed the performance of Allion common stock between October 16, 2008 and October 16, 2009. During this period, Allion common stock achieved a closing price high of $7.40 and a closing price low of $2.83. The results of this summary analysis are summarized below.

 

 

 

 

Raymond James also presented a stock price histogram, for the trailing twelve-month and six-month periods, illustrating that approximately 84.4% and 77.1% of the trading activity in Allion common stock during the twelve months and six months periods prior to announcement of the merger occurred at prices below the per share merger consideration of $6.60.

 

A comparison of the merger consideration to the historical trading price of Allion common stock as of one, five, thirty, sixty and ninety trading days prior to the announcement of the merger is set forth in the subsection entitled “— Premiums Paid Analysis” beginning on page 42.

 

Selected Public Companies Analysis

 

Raymond James compared certain operating, financial, trading, and valuation information for Allion to certain publicly available operating, financial, trading, and valuation information for nine selected companies, each of which Raymond James believes to have a business model reasonably similar, in whole or in part, to that of Allion. Allion distributes oral medications, ancillary drugs, and nutritional supplies to HIV AIDS patients and specialty injectable drugs, such as IVIG, blood clotting factor, and other therapies, to patients living with chronic diseases. Because there are no other publicly traded companies that focus exclusively on these same disease markets and services, the companies selected by Raymond James also included companies engaged, in whole or in part, in retail and other pharmacy distribution services, medical supplies distribution, and institutional pharmacy services. These selected companies included:

 

 

 

Raymond James did not provide our Board of Directors with all the data underlying this analysis for the selected companies, although Raymond James provided the current (as of October 16, 2009) enterprise values (calculated as the sum of the value of common equity on a fully diluted basis and the value of net debt) and the trailing twelve month earnings before interest, income taxes, depreciation, and amortization, or EBITDA, for the selected companies, as described in the following table:

 

 

Financial Metric		OMI				BIOS				OCR				PMC
Total Enterprise Value ( $ millions )		$	2,172			$	307			$	4,591			$	753
Trailing Twelve Month EBITDA ( $ millions )		$	207			$	22			$	709			$	101

 

In addition, for each of the selected companies, Raymond James calculated the multiples of enterprise value divided by (i) actual or projected revenue and (ii) actual or projected EBITDA (adjusted for non-recurring income and expenses), for the twelve month period ended June 30, 2009 and years ending December 31, 2009 and 2010. Raymond James also calculated the multiples of equity value per share divided by the diluted EPS (adjusted for non-recurring income and expenses) for the twelve month period ended June 30, 2009 and years ending December 31, 2009 and 2010. The resulting multiples for the selected companies are set forth in the table below:

 

 

 

Raymond James then reviewed the mean, median, low, and high relative valuation multiples of the selected companies and compared them to corresponding trading multiples for Allion on October 18, 2009, utilizing actual results as reported by Allion and Wall Street research consensus estimates for calendar years 2009 and 2010, as directed by Allion management. The results of the selected public company analysis are summarized below:

 

 

Raymond James then applied the mean and median multiples to the relevant Allion revenue, EBITDA, and EPS metrics, using consensus analyst estimates, per Allion management, to determine a range of implied Allion enterprise values. After adjusting for Allion’s capitalization, Raymond James reviewed the range of per share prices derived in the selected public companies analysis as of October 16, 2009 and compared them to

the merger price of $6.60 per share for Allion. The results of the selected public companies analysis are summarized below:

 

 

Raymond James noted that the consideration of $6.60 per share offered in the merger is within the range of values implied for the shares of Allion common stock by each of the multiples described in the preceding table. Additionally, while Raymond James noted that the consideration of $6.60 offered in the merger is less than the value implied for Allion by the means and medians of a number of the multiples used in this analysis, it also noted that the consideration of $6.60 offered in the merger is above the value implied for the Company by the means and medians of other multiples used in the analysis and within the range of the mean and median for one of the multiples used. The above analysis of enterprise value as a multiple of revenue for the selected companies is not intended to, and inherently does not take into account, differences in the relative profitability of the selected companies. Raymond James further noted that it had provided the means and medians for the multiples in this analysis solely for our Board of Directors’ information, and that those means and medians should not be viewed as dispositive as to whether a particular multiple supported the fairness of the consideration. Raymond James believes that considering this analysis individually, without considering all of Raymond James’s analyses as a whole, would create an incomplete view of the process underlying its opinion. Raymond James also noted that no company utilized in the selected companies analysis is identical to Allion, and, accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning our financial and operating characteristics and other factors that would affect the companies to which Allion is being compared.

 

Among other things, Raymond James noted that Allion might be negatively affected relative to the selected companies by Allion’s comparatively greater reliance for its revenue on state Medicaid programs, particularly in California and New York, which are experiencing budget shortfalls and are expected to face increasing fiscal problems. In addition to specialty pharmacy and disease management services, certain of the selected companies may derive substantial portions of their revenue and earnings from products and services that are not directly comparable to those provided by Allion. Also, Amerisourcebergen Corporation, Cardinal Health, Inc. and McKesson Corp. are substantially larger, in terms of revenue and earnings, than Allion. Raymond James utilized the selected companies for purposes of its analysis, but may not have included all companies that might be deemed to have certain business characteristics similar to ours for purposes of other comparisons, including companies that the Company might have identified as comparable for other purposes, such as analyses of executive compensation conducted by our Board of Directors as previously disclosed in our proxy statement relating to our annual meeting of stockholders. When considering the Raymond James analysis, stockholders may wish to consider the number of and any differences in the business characteristics of Allion and the selected companies.

Selected Transactions Analysis

 

Raymond James derived a range of potential values for Allion relative to select mergers and acquisitions involving companies that Raymond James believed to have similar business models, in whole or in part, to that of Allion and were announced and completed (or were then pending) between September 1, 2007 and October 17, 2009. No specific numeric or other similar criteria were used to select the selected transactions, and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. As a result, a transaction involving the acquisition of a significantly larger or smaller company with a business model similar, in whole or in part, to Allion’s may have been included, while a transaction involving the acquisition of a similarly sized company with less similar lines of business and greater diversification may have been excluded. Raymond James utilized the selected transactions for purposes of its analysis, but may not have included all transactions involving companies that might be deemed to have certain business characteristics similar to ours for purposes of other comparisons. The selected transactions considered included:

 

 

Raymond James calculated multiples of transaction enterprise value compared to the revenue and EBITDA (adjusted for non-recurring income and expenses) of the target companies, in each case for the reported twelve month period prior to announcement of the transaction, where such information was publicly available. The resulting multiples for the selected transactions are set forth in the table below:

 

 

Raymond James then reviewed the mean, median, low, and high relative valuation multiples of the selected transactions and compared them to corresponding multiples for Allion as of October 16, 2009. The results of the selected transactions analysis are summarized below:

 

 

Raymond James then applied the mean and median multiples to the relevant Allion revenue and EBITDA metrics to determine a range of implied Allion enterprise values. After adjusting for our capitalization, Raymond James reviewed the range of per share prices derived in the selected transactions analysis and

compared them to the offer price of $6.60 per share for Allion. The results of the selected transactions analysis are summarized below:

 

 

Raymond James believes that considering this analysis individually, without considering all of Raymond James’s analyses as a whole, would create an incomplete view of the process underlying its opinion. No transaction utilized in the selected transactions analysis is identical to the proposed merger, including the timing or size of the transactions, and, accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning Allion’s financial and operating characteristics and other factors that would affect the selected transactions to which Allion is being compared.

 

Premiums Paid Analysis

 

For informational purposes, Raymond James analyzed the premiums paid in 54 all-cash acquisitions for U.S. publicly traded companies with a transaction enterprise value between $100 and $500 million that were announced and completed between September 1, 2007 and October 17, 2009.

 

Raymond James’s analysis was based on the one-, five-, thirty-, sixty- and ninety-day average implied premiums paid in such transactions. The implied premiums in this analysis were calculated by comparing the publicly disclosed transaction price to the target company’s one-, five-, thirty-, sixty- and ninety-day average stock price prior to the announcement of each of the applicable transactions as summarized below:

 

 

 

The implied price per share range for Allion shown in the table below was calculated with the above transaction premiums using the closing price of Allion common stock on the relevant date.

 

 

Raymond James noted that the consideration of $6.60 per share offered in the merger is less than the value implied for shares of Allion common stock by the means and medians of the transaction set over the premium periods described in the preceding table. However, Raymond James also noted that the premiums implied by the consideration offered in the merger are within the ranges of premiums for the transaction set over each of the premium periods described in the preceding table. Raymond James believes that considering this analysis individually, without considering all of Raymond James’s analyses as a whole, would create an incomplete view of the process underlying its opinion. Raymond James also noted that no transaction utilized in the premiums paid analysis is identical to the merger, including the timing or size of the transactions, and, accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning our financial and operating characteristics and other factors that would affect the acquisition value of companies to which Allion is being compared. Raymond James further noted that, given the large number of transactions included in the premiums paid analysis, and the dispersion of those

transactions over time and across industries, the premiums paid analysis was provided for general informational purposes, rather than as a specific valuation of Allion. Raymond James also noted that Allion’s shares were relatively illiquid with prices subject to significant fluctuations, making its market price at any time potentially less indicative of the potential value of Allion.

 

Additional Considerations

 

The foregoing summary describes all analyses and quantitative factors that Raymond James deemed material in its presentation to our Board of Directors but is not a comprehensive description of all analyses performed and factors considered by Raymond James in connection with preparing its opinion. The preparation of a fairness opinion is a complex process involving the application of subjective business judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. In arriving at its fairness determination, Raymond James did not assign specific weights to any particular analyses.

 

The analyses conducted by Raymond James were prepared solely for the purpose of enabling Raymond James to provide its opinion to our Board of Directors as to the fairness, from a financial point of view, of the consideration to be received by the holders of Allion common stock (other than the rollover stockholders, Parent, Merger Sub and their respective affiliates) to such holders. The analyses are not appraisals nor do they necessarily reflect the prices at which assets or securities actually may be sold. In performing its analyses, Raymond James made, and was provided by our management with, numerous assumptions with respect to industry performance, general business, economic, and regulatory conditions and other matters, many of which are beyond our control. The analyses performed by Raymond James, particularly those based on forecasts, are not necessarily indicative of actual values, trading values, or actual future results which might be achieved, all of which may be significantly more or less favorable than suggested by such analyses at the time of the opinion delivery. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond our or our advisors’ control, none of Allion, Raymond James or any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions. All such analyses were prepared solely as a part of Raymond James’s analysis of the fairness, from a financial point of view, to certain holders of Allion common stock of the consideration to be received by such holders. Raymond James’s opinion is directed to our Board of Directors and is intended for its use in its consideration of the merger. The per share merger consideration was determined through negotiation between the Special Committee and H.I.G., and the decision by the Special Committee and our Board of Directors to enter into the merger agreement was solely that of the Special Committee and our Board of Directors. The opinion of Raymond James was one of many factors taken into consideration by our Board of Directors in making its determination to approve the merger. Consequently, the analyses described above should not be viewed as determinative of the opinion of our Board of Directors or management with respect to the value of Allion. We placed no limits of the scope of the analysis performed, or opinion expressed, by Raymond James. Our Board of Directors selected Raymond James as financial advisor in connection with the merger based on Raymond James’s qualifications, expertise, reputation, and experience in mergers and acquisitions. For services rendered in connection with the delivery of its opinion, we paid Raymond James a fee of $250,000 upon delivery of its opinion. We will also pay Raymond James a fee for advisory services of approximately $2.78 million in connection with, and contingent upon consummation of, the merger. We also agreed to reimburse Raymond James for expenses incurred in connection with its services, including the fees and expenses of its counsel, and we will indemnify Raymond James, including for liabilities under federal securities laws, relating to, or arising out of, its engagement.

 

Raymond James is actively involved in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations, and similar transactions. In the ordinary course of business, Raymond James may trade in the securities of Allion for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

Other than the engagement of Raymond James by our Board of Directors described in this section, there are no existing or contemplated material relationships or arrangements for future services, nor have any such relationships or arrangements existed or been contemplated during the past two years, involving or resulting in the payment or receipt of compensation between Raymond James or its affiliates and any party to the transaction or their respective affiliates.

 

Certain Financial Forecasts and Other Information

 

Allion does not as a matter of course make public financial forecasts. However, in connection with the discussions concerning the proposed transactions, in February and June 2009, our management furnished to Raymond James a forecasted budget for the year ended December 31, 2009, without giving effect to the merger or the other transactions contemplated by the merger agreement. The financial forecast was prepared by our management in early 2009 based on its then-current expectations.

 

Our management furnished these forecasts to Raymond James in connection with Raymond James’s engagement as the financial advisor to Allion. Our management did not update these forecasts subsequent to providing them to Raymond James to reflect subsequent events with regard to the Company’s business. Accordingly, our management subsequently advised Raymond James that these projections were too unreliable to be used in connection with the preparation of any financial analysis with regard to the proposed merger. Accordingly, Raymond James’s analyses, including the Selected Public Companies Analysis, and opinion were prepared at our direction using consensus Wall Street net income and EBITDA estimates from publicly available sources. The Company’s management was unable to prepare forecasts for periods subsequent to the year ended December 31, 2009 because of uncertainties regarding potential reductions in reimbursement rates (including as a result of changes to pricing benchmarks such as AWP and state budget cuts), health care reform, and the uncertain status of premium reimbursement programs in California and New York. Accordingly, because Raymond James was not provided with sufficient forecasts, Raymond James did not prepare a discounted cash flow analysis, which is a common technique used in the valuation of securities where sufficient forecasts are available, in connection with its engagement as our financial advisor.

 

The inclusion of these financial forecasts in this proxy statement should not be regarded as an indication that Allion or our Board of Directors considered, or now considers, these forecasts to be material to a stockholder or a reliable predictor of future results. You should not place undue reliance on the financial forecasts contained in this proxy statement. Please read carefully “— Important Information about the Financial Forecasts” below.

 

 

Adjusted EBITDA is defined as net income before interest expense, income tax expense and depreciation and amortization and excluding the change in fair value of warrants, stock-based compensation expense from phantom stock units. The financial forecast of Adjusted EBITDA was not prepared in accordance with generally accepted accounting principles, or GAAP, and includes a number of non-GAAP adjustments and exclusions. Therefore, the financial forecasts should not be compared to actual results disclosed in Allion’s periodic reports or elsewhere.

 

Important Information about the Financial Forecasts

 

The financial forecasts set forth above were not prepared with a view toward public disclosure, were not prepared in accordance with GAAP and are included in this proxy statement only because they were provided

by our management to Raymond James for purposes of engaging in discussions with respect to the transactions.

 

The financial forecasts included in this proxy statement were prepared by and are the responsibility of our management. The financial forecasts were not prepared by our management with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or GAAP.

 

The financial forecasts are not guarantees of performance of Allion. The financial forecasts are forward-looking statements that are subject to a number of significant risks, uncertainties and assumptions, and should be read with caution. See “Risk Factors and Special Cautionary Notice Regarding Forward Looking Statements” beginning on page 66.

 

While presented with numeric specificity, the financial forecasts reflect numerous important assumptions, many of which are highly subjective, made by our management in light of business, industry and market conditions at the time of their respective preparation. The financial forecasts and assumptions underlying them have not been updated since the dates of preparation. There can be no assurance that the assumptions made in preparing the financial forecasts or the financial forecasts themselves will prove accurate. Actual results may be materially different than the financial forecasts. Allion does not intend to make publicly available any update or other revisions to the financial forecasts.

 

Other Information

 

In accordance with ASC 350, “Intangibles — Goodwill and Other,” or ASC 350 (formerly Statement of Financial Accounting Standards 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. Solely for the purpose of this impairment testing, we engaged a third party appraisal firm to determine the fair value, for purposes of ASC 350 as of September 30, 2008, of the total invested capital of each of our three reporting units. Our three reporting units consisted of our specialty infusion segment, which resulted from our acquisition of Biomed America in April 2008, and our specialty HIV segment, which was disaggregated into East and West reporting units for the purpose of testing goodwill for impairment.

 

The summary appraisal reports for each segment used a combination of the income and market approach, with equal weighting given to both. The income approach, or discounted cash flow approach, requires estimates regarding future operations and the ability to generate cash flows, including projections of revenue, costs, and capital requirements. In estimating the fair value of the reporting units for the 2008 impairment tests, the third party appraisal firm applied discount rates to our reporting units’ projected cash flows of 13%. In developing this discount rate, the third party appraisal firm relied upon a weighted average cost of capital calculation. For more information regarding the assumptions used in connection with these analyses, please refer to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.

 

The market approach is based on the comparable transaction method, which considers the sale and acquisition activities in our industry and derives a range of valuation multiples. The third party appraisal firm applied the median of the resulting multiples (approximately 15.5 times EBITDA) to the reporting units to determine fair value under this method. An equal weighting was applied, as there were no material circumstances surrounding the application of each approach that would require a different weighting mechanism.

 

The appraisal reports prepared by the third party appraisal firm indicated the following fair values of invested capital for each approach:

 

The appraisal reports described above were prepared on the basis of a number of important assumptions and estimates that were made as of the time each of these appraisal reports was prepared as of September 30, 2008, and do not take into account

 

 

You should note that these appraisal reports were prepared for the limited purpose of testing goodwill impairment for each of the Company’s operating segments pursuant to generally accepted accounting principles and were not prepared for the purpose of determining, and do not represent, an appraisal of the fair value of the Company as a whole or of the Company’s common stock. The assumptions and estimates, including discount rates, used in preparing an appraisal report with respect to an individual operating segment may be inappropriate for use in preparing an analysis of the Company as a whole or of the Company’s common stock. Conducting the analyses described above with regard to the Company as a whole or the Company’s common stock, and using updated assumptions and estimates, may yield results that are higher than the per share consideration of $6.60 under the merger agreement.

 

Neither the Special Committee nor our Board of Directors considered these appraisal reports relevant or useful for purposes of assessing the fairness of the per share consideration of $6.60 under the merger agreement.

 

If the merger is consummated, Merger Sub will be merged with and into Allion, with Allion continuing as the surviving corporation and a wholly owned subsidiary of Parent. At the effective time of the merger, the following will occur:

 

 

If the merger is completed, all of the equity interests in Allion will be owned directly by Parent, which immediately following the effective time of the merger will be owned by H.I.G. Healthcare, LLC and the rollover stockholders. Immediately prior to the effective time of the merger, the rollover stockholders will surrender a portion of their shares of Allion common stock in exchange for equity interests in Parent. Except for the rollover stockholders, no current stockholder of Allion will have any ownership interest in, nor be a stockholder of, Allion immediately following the completion of the merger. As a result, Allion’s stockholders (other than the rollover stockholders) will no longer benefit from any increase in Allion’s value, nor will they bear the risk of any decrease in Allion’s value. Following the merger, the rollover stockholders and H.I.G. Healthcare, LLC will, by virtue of its ownership of Parent, benefit from any increase in the value of Allion and also will bear the risk of any decrease in the value of Allion.

 

Allion’s common stock is currently registered under the Exchange Act and is listed on the NASDAQ Global Market under the symbol “ALLI.” As a result of the merger, Allion will become a privately held corporation without a public market for its common stock, Allion common stock will no longer be listed on any exchange, including NASDAQ, and price quotations for Allion stock will no longer be available. In addition, the registration of Allion common stock under the Exchange Act will be terminated following the merger. Therefore, the provisions of the Exchange Act will no longer apply to Allion, including the requirement that Allion furnish a proxy or information statement to its stockholders in connection with meetings of its stockholders. Allion will also no longer be required to file periodic reports with the SEC.

 

At the effective time of the merger, the certificate of incorporation and bylaws of Allion will be amended to look like the certificate of incorporation and bylaws of Merger Sub in effect immediately prior to the effective time of the merger and will become the certificate of incorporation and bylaws of Allion as the surviving corporation.

 

Upon the completion of the merger, the directors of Merger Sub immediately prior to the merger will become the directors of Allion, and the officers of Allion immediately prior to the merger will continue to serve as the officers of Allion.

 

The benefits of the merger to Allion’s unaffiliated stockholders include their right to receive $6.60 per share in cash for their shares of Allion common stock and the fact that they will no longer bear the risk that Allion will decrease in value. The detriments of the merger to Allion’s unaffiliated stockholders are that they will cease to participate in Allion’s future earnings and growth, if any, that they will no longer own any interest in Allion’s net book value or net earnings, and that the receipt of the payment for their shares in the merger will be a taxable event for U.S. federal income tax purposes. See “— Material U.S. Federal Income Tax Consequences” beginning on page 62, below.

 

The benefits of the merger to the H.I.G. Buying Group include the fact that, following the completion of the merger, Parent will directly own 100% of the outstanding common stock of Allion and will therefore have a corresponding 100% interest in the surviving corporation’s net book value and net earnings. The benefits of the merger to the Parallex Group include the fact that, following the completion of the merger, the Parallex Group will own 19.52% of the capital stock of Parent and will therefore indirectly have a 19.52% interest in the surviving corporation’s net book value and net earnings.

 

Immediately after the merger, based on Allion’s unaudited September 30, 2009 financial statements and calculated based on Allion’s net earnings for the nine months ended September 30, 2009, Parent’s 100% interest in the surviving corporation’s net book value will be equal to approximately $193.1 million (as compared to no interest in Allion’s net book value at September 30, 2009) and $9.9 million in the surviving corporation’s net earnings (as compared to no interest in Allion’s net earnings for the nine months ended September 30, 2009). The Parallex Group’s 19.52% indirect interest in the surviving corporation will be equal to approximately $37.7 million in the surviving corporation’s net book value (as compared to an interest of $53.2 million in Allion’s net book value at September 30, 2009) and $1.9 million in the surviving corporation’s net earnings (as compared to an interest of $2.7 million in Allion’s net earnings for the nine months ended September 30, 2009).

 

In addition, the H.I.G. Buying Group and the Parallex Group will benefit from the savings associated with Allion no longer being required to file reports under or otherwise having to comply with provisions of the Exchange Act. Detriments of the merger to the H.I.G. Buying Group and the Parallex Group include the lack of liquidity for Allion common stock following the merger, the risk that Allion will decrease in value following the merger, and the payment by Allion of approximately $4.9 million in transaction costs and estimated fees and expenses related to the merger, which such fees and expenses are further set forth below in “— Estimated Fees and Expenses of the Merger.”

 

Following the completion of the merger, the H.I.G. Buying Group anticipates that Allion will continue its current operations substantially as they are currently being conducted, except that Allion will be a wholly owned subsidiary of Parent rather than an independent public company. Following the completion of the merger, the registration of Allion’s common stock under the Exchange Act will be terminated, along with Allion’s reporting obligations under the Exchange Act. In addition, upon completion of the merger, Allion common stock will no longer be listed on any exchange, including NASDAQ, and price quotations will no longer be available for Allion common stock. Allion will no longer be subject to the obligations and constraints or the related direct and indirect costs associated with having publicly traded equity securities.

 

The H.I.G. Buying Group has advised Allion that they do not have any specific plans or proposals that relate to or would result in an extraordinary corporate transaction following completion of the merger involving Allion’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or purchase, sale or transfer of a material amount of assets. However, the H.I.G. Buying Group expects to continuously evaluate and review Allion’s business and operations following the merger and may develop new plans and proposals that they consider appropriate to maximize the value of Allion. The H.I.G. Buying Group expressly reserves the right to make any changes they deem appropriate in light of such evaluation and review or in light of future developments.

 

It is currently anticipated that each of Bayside Capital, Inc., an affiliate of H.I.G., and RAM Capital Group, LLC, an affiliate of Parallex, will enter into an agreement with the Company following the closing of the transactions contemplated under the Merger Agreement pursuant to which each such entity would provide certain management and consulting services to the Company in exchange for reimbursement of expenses associated with providing such services and a fee equal to $975,000 per annum in the case of Bayside Capital, Inc. and $275,000 per annum in the case of RAM Capital Group, LLC. The Company will also provide customary indemnification to such entities in connection with such services.

 

It is currently anticipated that Bayside Capital, Inc. will enter into an agreement with the Company following the closing the transactions contemplated under the Merger Agreement pursuant to which it would provide certain transaction consulting services to the Company in exchange for reimbursement of expenses associated with providing such services and fees equal to 2% of the value associated with certain sale and acquisition transactions contemplated by such agreement. The Company will also provide customary indemnification in connection with such services. RAM Capital Group, LLC may participate in providing such services and in connection therewith, may be entitled to a portion of such fees as mutually determined between the parties.

 

In connection with the structuring and implementation of the merger and related financing transactions, the Company will pay Bayside Capital, Inc. fees in an aggregate amount equal to 2% of the total enterprise value at the completion of the Merger plus all out-of-pocket expenses incurred by H.I.G. prior to the closing of the Merger for services rendered by them in connection with consummation of the Merger.

 

In the event that the merger agreement is not approved by Allion’s stockholders or if the merger is not completed for any other reason, Allion’s stockholders will not receive any payment for their shares of Allion common stock. Instead, Allion will remain an independent public company, its common stock will continue to be listed and traded on NASDAQ, and our stockholders will continue to be subject to the same risks and

opportunities as they currently face with respect to their ownership of Allion common stock. If the merger is not completed, Allion can offer no assurance as to the effect of these risks and opportunities on the future value of your shares of Allion common stock, including the risk that the market price of Allion common stock may decline due to the fact that the current market price of Allion stock may reflect a market assumption that the merger will be completed. If the merger is not completed, our Board of Directors will evaluate and review the business operations, properties, dividend policy and capitalization of Allion from time to time, make such changes as they deem appropriate, and continue to seek to maximize stockholder value. If the merger agreement is not approved by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other acceptable transaction will be available to the Company or that Allion’s business, prospects or results of operations will not be adversely impacted.

 

Pursuant to the merger agreement, under certain circumstances, Allion is permitted to terminate the merger agreement and approve an alternative transaction. See “The Merger and the Merger Agreement — Termination” beginning on page 78.

 

To the extent Allion does so, it will be obligated to pay Parent a termination fee. See “The Merger and the Merger Agreement — Termination Fees; Expenses” beginning on page 79.

 

Equity Commitment Letter

 

Pursuant to an equity commitment letter from H.I.G. Bayside Debt & LBO Fund II, L.P. to Parent dated as of October 18, 2009, H.I.G. Bayside Debt & LBO Fund II, L.P. has agreed to make capital contributions of up to $165 million to Parent in exchange for equity interests of Parent, to enable Parent and Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement. The amount of the equity contribution from H.I.G. Bayside Debt and LBO Fund II, L.P. will be reduced at closing to the amount, when coupled with the aggregate proceeds of the debt financing described below, that is necessary to consummate the merger and other transactions contemplated by the merger agreement.

 

These contributions are subject to:

 

 

Debt Commitment Letters

 

Parent and Merger Sub will finance the merger and the transactions contemplated by the merger agreement using debt financing in an aggregate amount of not less than $159 million obtained from the proceeds of the Facilities and Notes, each defined below. The debt financing will reduce the amount of the equity commitment of H.I.G. Bayside Debt & LBO Fund II, L.P., described above, to an amount not to exceed the amount required to consummate the merger and the transactions contemplated by the merger agreement. H.I.G. Bayside Debt & LBO Fund II, L.P. and Parent have arranged to secure certain commitments in respect of debt financing, consisting of a senior secured credit facility and an issuance of unsecured senior subordinated notes. The proceeds of such financing shall be used, as applicable, for the purpose of funding a portion of the consideration payable in connection with the merger, to pay certain fees and expenses of the merger, and for general corporate purposes for the operation of the surviving corporation following the closing of the merger.

 

Fifth Third Bank, or Fifth Third, provided a commitment letter dated October 18, 2009 to H.I.G. Bayside Debt & LBO Fund II, L.P., pursuant to which Fifth Third, subject to the terms and conditions therein, agreed (i) to act as arranger and administrative agent for the a term loan in the principal amount of $95 million, which we refer to as the Term Loan, and a revolving credit facility in the principal amount of $15 million,

which we refer to as the Revolver and refer to together with the Term Loan as the Facilities, (ii) to commit to provide a portion of the Facilities in an aggregate amount of $30 million (to be allocated pro rata between the Revolver and the Term Loan), and (iii) to use its best efforts to arrange additional lenders to provide financing commitments in the aggregate amount of $80 million to complete the Facilities. Interest on the Facilities will be payable at a rate of prime plus 5.00%, or, at the surviving corporation’s election, LIBOR plus 6.00%. The Facilities will be secured by substantially all of the assets of the surviving corporation following consummation of the merger, and will mature 5 years following the closing date.

 

Pursuant to commitment letters obtained by Fifth Third and H.I.G. Bayside Debt & LBO Fund II, L.P. since October 18, 2009, each of Brown Brothers Harriman & Co., Churchill Financial Cayman, Ltd., Siemens Financial Services, Inc., Sovereign Bank, SunTrust Bank, and TD Bank, N.A., has committed, subject to the terms and conditions therein, to provide, together with Fifth Third and the other committed lenders, the entire $110 million of debt financing contemplated by the Fifth Third commitment letter.

 

Falcon Strategic Partners III, LP, or Falcon, provided a financing commitment letter dated October 18, 2009 to Parent, pursuant to which Falcon, subject to the terms and conditions therein, committed to purchase an amount of senior subordinated notes, which we refer to as the Notes, sufficient to result in aggregate gross proceeds of not less than $49 million and not more than $51 million, as the surviving corporation, following consummation of the merger, may elect. The Notes will bear interest at a rate of 16.00% per annum (3.00% of which may be either paid in cash or added to principal at the election of the surviving corporation) and will mature 5.5 years following the closing date. In addition, Falcon (together with other purchasers of Notes, as applicable) will receive detachable warrants representing the right to purchase common and preferred stock of Parent equal to 3.00% of the total equity interests of Parent on a fully diluted basis.

 

Repayment of Indebtedness

 

We intend to repay the indebtedness incurred to effect the merger through cash flow from operations. Although there can be no assurance, we believe that cash flow from operations should be sufficient to service our interest and principal repayment obligations under the indebtedness incurred to effect the merger for the foreseeable future. However, we believe that it is reasonably likely that we will need to refinance all or a portion of the Facilities and/or Notes prior to maturity with the proceeds of future financing activities.

 

Pursuant to a limited guarantee, H.I.G. Bayside Debt & LBO Fund II, L.P. has agreed to guarantee the obligations of Parent and Merger Sub under the merger agreement with respect to any reverse termination fee payable by Parent, plus interest on any unpaid reverse termination fee at the prime lending rate published in The Wall Street Journal on the date such payment is required to be paid. In addition, H.I.G. Bayside Debt & LBO Fund II, L.P. has agreed to guarantee, up to $10 million, the obligations of Parent to pay any losses or damages payable to Allion as a result of Parent’s or Merger Sub’s willful breach of the merger agreement and Allion’s expenses (including reasonable attorneys’ fees) incurred in connection with the enforcement of Parent’s obligations to pay any such termination fee.

 

The guarantee will terminate upon the earlier of the completion of the merger or the first anniversary of the merger agreement, unless prior to such first anniversary the Company presents a claim for payment to Parent, Merger Sub or H.I.G. Bayside Debt & LBO Fund II, L.P. under the terms of the merger agreement or the limited guarantee.

 

Exchange Agreements

 

As a condition and inducement to Parent and Merger Sub to enter into the merger agreement, Parent entered into exchange agreements with the rollover stockholders: Parallex, Rhonda Boni-Burden, Michael G. Bush, Edward L. Chomyak, Jason Cofone, James Francis Colonel, Arthur A. Cuomo, Shelly DeMora, David A. Galardi, Jennifer Hoefner, William A. Jones, Mark A. Kovinsky, John M. Kowalski, Bari Kuo, Kathy A.

Love, Jonathan A. Lowe, Russell D. Lubrani, Virginia J. Margoli, Joseph T. Molieri, Jr., Shauna Mirra as Custodian for Devinne Peterson UTMA-PA, Ellen Pinto, Deborah Porter, Kimberley Prien-Martinez, Joseph Renzi, Anne-Marie Riley, Brian Rodgers, James R. Sadlier, Peter Sartini, Stephen Seiner, Renee M. Sigloch, Ryan N. Sloan, Mark Strollo, Joseph A. Troilo and Joseph J. Tropiano, Jr.

 

Pursuant to the exchange agreements, immediately prior to the effective time of the merger, each of the rollover stockholders will surrender a portion of their shares of Allion common stock to Parent in exchange for a combination of senior preferred stock, junior preferred stock and common stock in Parent. The rollover stockholders will surrender an aggregate of 7,911,545.54 shares of Allion common stock, or 27.6% of the issued and outstanding shares of Allion common stock. Upon the completion of the merger, the rollover stockholders will directly own approximately 29.2% of the outstanding voting equity interest of Parent, of which Allion will be a wholly owned subsidiary.

 

The following table sets forth the number of shares and percentage of outstanding Allion common stock held by each rollover stockholder individually owning more than 1% of Allion common stock as of December 11, 2009, along with the number of shares and percentage of the voting capital stock of Parent that each will own after the completion of the merger:

 

 

Each of the other rollover stockholders individually owned less than 1% of Allion common stock as of December 11, 2009 and will own less than 0.6% of the outstanding voting equity interests of Parent upon completion of the merger.

 

The rollover agreements will terminate automatically upon the termination of the merger agreement prior to the completion of the merger. Parent has additionally agreed to indemnify Parallex and its members, directors, officers, employees and agents from and against any losses, damages, fees, expenses and costs arising from claims related to the merger that are asserted by any of Allion’s stockholders related to the transactions contemplated by the merger agreement and has established a $1 million escrow account to support such obligations.

 

Stockholders Agreement

 

The rollover stockholders have also entered into a stockholders agreement with Parent and H.I.G. Healthcare, LLC, a member of the H.I.G. Buying Group, which will own the remaining equity interests in Parent upon completion of the merger. The stockholders agreement will govern the rights and obligations of H.I.G. Healthcare, LLC and the rollover stockholders as holders of equity interests in Parent following completion of the merger. Pursuant to the stockholders agreement, immediately following the merger, the board of directors of Parent will initially consist of nine members, five of which will be designated by H.I.G. Healthcare, LLC, three of which will be designated by Parallex and one of which will be the chief executive officer of Parent. The stockholders agreement also sets forth restrictions on transfer of the rollover stockholders’ equity interests in Parent and provides the rollover stockholders with certain veto rights, preemptive rights and tag-along rights.

 

Other Agreements

 

The rollover stockholders have also entered into restrictive covenant agreements, pursuant to which they will be subject to confidentiality obligations from and after the effective time of the merger and under the restrictive covenant agreement. Parallex and Raymond Mirra will be subject to certain non-competition and non-solicitation covenants for a period of three years, and the other rollover stockholders will be subject to