ALLION HEALTHCARE INC
SUBORDINATED SECURED PROMISSORY NOTE
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>10
<FILENAME>ex10-5.txt
<DESCRIPTION>SUBORDINATED SECURED PROMISSORY NOTE
<TEXT>


                                                                    Exhibit 10.5

                                                                  Execution Copy


                      SUBORDINATED SECURED PROMISSORY NOTE


$57,500.00                                                          May 1, 2003


                  FOR VALUE RECEIVED, the undersigned ALLION HEALTHCARE, INC., a
Delaware corporation (the "BORROWER"), promises to pay to ALLAN H. PETERSON (the
"HOLDER"), the principal sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS
($57,500.00), plus accrued interest from the date hereof, at a rate equal to the
Prime Rate, as published in the Eastern Edition of The Wall Street Journal plus
two percent (2%) per annum (the "INTEREST Rate"), on the unpaid principal amount
outstanding hereunder from time to time. The Interest Rate shall be reset on
each Payment Date (as defined below) and shall apply for the following payment
period. Payments of principal and interest shall be made in lawful money of the
United States of America, to the address of record of the Holder as set forth
herein, or at such place as the Holder may designate in writing. This
Subordinated Secured Promissory Note (this "NOTE") is issued in connection with
that certain Stock Purchase Agreement (as modified and amended from time to
time, the "PURCHASE AGREEMENT"), of even date herewith, by and among the
Borrower, the Holder, and Darin A. Peterson. The obligations of the Borrower
under this Note are secured by certain assets of Borrower as set forth in that
certain Subordinated Security Agreement (as modified and supplemented from time
to time, the "SECURITY AGREEMENT"), of even date herewith, by and among the
Borrower, Darin A. Peterson, the Holder and Darin A. Peterson, as collateral
agent. Capitalized terms used and not otherwise defined herein shall have the
same meanings ascribed to them in the Security Agreement. In the event of a
conflict between the terms hereof and the terms of the Security Agreement, the
terms of the Security Agreement shall prevail.

                  Subject to Section 6(g) hereof, principal and interest on this
Note shall be due and payable as follows:

                  (i)      The entire unpaid balance of the principal shall be
                           due and payable on the date that is one (1) year from
                           the date hereof (the "MATURITY DATE");

                  (ii)     Beginning on the date hereof until the Maturity Date,
                           interest on the outstanding principal amount shall be
                           due and payable in arrears on a quarterly basis on
                           each of June 30, 2003, September 30, 2003, December
                           31, 2003, and March 31, 2004 (each a "PAYMENT DATE").
                           All computations of interest payable hereunder shall
                           be on the basis of a 365-day year and actual days
                           elapsed in the period of which such interest is
                           payable; and

                  (iii)    In the event that prior to the Maturity Date,
                           Borrower engages in (a) any underwritten public
                           offering of any shares of Borrower's capital stock
                           resulting in aggregate proceeds to Borrower in excess
                           of $25 million or (b) a Borrower Acquisition
                           Transaction, as herein defined, shall have occurred,
                           all outstanding payments due under this Note shall
                           become due and payable within thirty (30) calendar
                           days of the consummation of such underwritten public
                           offering or Borrower Acquisition Transaction, as the
                           case may be (an "EARLY MATURITY DATE"). For purposes
                           of this Note, "BORROWER ACQUISITION TRANSACTION"
                           shall mean (x) any sale, lease, exchange, transfer or
                           other disposition of the assets of Borrower or any
                           subsidiary of Borrower constituting more than fifty
                           percent (50%) of the consolidated assets of Borrower
                           or accounting for more than fifty percent (50%) of




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                           the consolidated revenues of Borrower in any one
                           transaction or in a series of related transactions,
                           or (y) any offer to purchase, tender offer, exchange
                           offer or any similar transaction or series of related
                           transactions made by any person or entity involving
                           more than fifty (50%) of the outstanding shares of
                           the capital stock of the Borrower or (z) any merger,
                           consolidation or similar transaction to which
                           Borrower is a party, other than (a) any merger
                           effected solely to implement a recapitalization of
                           the Borrower in which no person acquires more than
                           50% of the combined voting power of the Borrower's
                           then outstanding securities, or (b) any merger,
                           consolidation or similar transaction between or among
                           the Borrower and any of its then wholly-owned
                           subsidiaries.

                  (iv)     In the event that any indemnification claim by the
                           Borrower pursuant to the terms and conditions of the
                           Purchase Agreement is pending at the time of the
                           Early Maturity Date or the Maturity Date, the lesser
                           of (a) the amount of such claim and (b) the sum of
                           the outstanding principal and all accrued but unpaid
                           interest on this Note, shall be placed in a third
                           party escrow account mutually acceptable to Borrower
                           and Holder until the time that such pending claim is
                           resolved.

                  1. DEFAULT. In the case of the occurrence of one or more of
the following events (each, a "DEFAULT"): (i) the Borrower fails to make when
due any payment of principal or interest hereunder and such default is not cured
within five (5) calendar days; (ii) the Borrower becomes insolvent or generally
fails to pay, or admits in writing its inability to pay, any of its debts as
they become due; (iii) the Borrower applies for a trustee, receiver or other
custodian for it or a substantial part of its property; (iv) a trustee, receiver
or other custodian is appointed for the Borrower or for a substantial part of
its property; (v) any bankruptcy, reorganization, debt arrangement, or other
case or proceeding is commenced in respect of the Borrower; (vi) any
representation or warranty made by the Borrower in the Security Agreement or in
any certificate, financial statement or other document furnished pursuant
thereto shall prove to have been materially incorrect when made or (vii) (A)
Borrower breaches any of the covenants set forth in Sections 6(d) through (g),
inclusive, or Section 9 of the Security Agreement, (B) any default in the
observance or performance of any of the other conditions, covenants or
agreements of Borrower set forth herein or in the Security Agreement (other than
as set forth above), and continuance thereof for a period of ten (10) calendar
days after the Collateral Agent delivers written notice of such default to
Borrower (or such other cure period which may otherwise be applicable); or
(viii) any default in any agreement between Borrower and a third party that
gives the third party the right to accelerate the payment of $100,000 or more of
any indebtedness owed to the third party under such agreement, unless disputed
in good faith; then, upon the occurrence of any such event, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of the Holder, and in the case of an event of default pursuant to (ii)
through (v) above, automatically, be immediately due, payable, and collectible
by Holder pursuant to applicable law. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same at any other time.



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                  2. DEFAULT INTEREST. Upon the occurrence and the continuance
of a Default, any amount of principal not paid before the due date shall accrue
interest at a rate per annum equal to the Interest Rate plus five percent (5%)
per annum.

                  3. WAIVER. Borrower hereby waives, to the fullest extent
permitted by applicable law, notice, demands, notice of nonpayment, presentment,
protest and notice of dishonor.

                  4. ENFORCEMENT. Upon the occurrence of a Default, the Holder
may employ an attorney to enforce the Holder's rights and remedies and the
Borrower hereby agrees to pay to the Holder's reasonable attorneys' fees, plus
all other reasonable expenses incurred by the Holder in exercising any of the
Holder's rights and remedies upon default. The rights and remedies of the Holder
as provided in this Note shall be cumulative and may be pursued singly,
successively, or together against any other funds, property or security held by
the Holder for payment or security, in the sole discretion of the Holder. The
failure to exercise any such right or remedy shall not be a waiver or release of
such rights or remedies or the right to exercise any of them at another time.

                  5. SUBORDINATION. The indebtedness evidenced by this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of the Senior
Indebtedness. For purposes hereof, "SENIOR INDEBTEDNESS" shall mean, unless
expressly subordinated to or made on a parity with the amounts due under this
Note, the principal of, unpaid interest on and amounts reimbursable, fees,
expenses, costs of enforcement by (x) wholesalers in the ordinary course of
business and (y) any lender for borrowed money (each, a "SENIOR LENDER")
pursuant to the $6 million revolving term credit facility under the Loan and
Security Agreement by and among Borrower, Mail Order Meds, Inc., Care Line of
New York, Inc. and Heller Healthcare Finance dated April 21, 1999 or any
replacement of such facility. By acceptance of this Note, Holder hereby
authorizes the Collateral Agent to execute and deliver, on Holder's behalf,
customary forms of subordination agreement requested from time to time by the
Senior Lender. The Holder shall enter into such subordination agreements
consistent with the provisions of this Section 5 as may be reasonably requested
by the Senior Lender.

                  6. MISCELLANEOUS. The following general provisions apply:

                  (a) This Note, and the obligations and rights of the parties
hereunder, shall be binding upon and inure to the benefit of the Borrower, the
Holder, and their respective heirs, personal representatives, successors and
assigns.

                  (b) Changes in or amendments or additions to this Note may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively), upon written consent of the
Borrower and the Holder.

                  (c) The undersigned and any holder hereof waive trial by jury
in any action or proceeding to which the undersigned and any such holder may be
parties arising out of or in connection with this Note.



                                      -3-




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                  (d) In the event that the rate of interest provided for in
this Note exceeds the maximum rate permitted by law, such rate of interest shall
be reduced to the maximum rate of interest permitted by law.

                  (e) All notices, requests, consents and demands shall be made
in writing and shall be mailed postage prepaid, or delivered by reliable
overnight courier or by hand, to the Borrower or to the Holder at their
respective addresses set forth below or to such other address as may be
furnished in writing to the other party hereto and shall be effective upon
receipt:

                  If to the Borrower, at 33 Walt Whitman Road, Suite 200A,
Huntington Station, NY 11746, Attention: Chief Executive Officer.

                  If to the Holder, at 23318 Evalyn Avenue, Torrance, CA 90505.

                  (f) This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of California.

                  (g) Notwithstanding anything contained herein to the contrary,
Borrower has the right to set off amounts due to the Holders under this Note
against any purchase price adjustment and/or indemnification obligations that
the Holders have to Borrower pursuant to Section 1.7 or Article 9 of the
Purchase Agreement.

                  IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed in its corporate name by a duly authorized officer, by order of its
Board of Directors as of the day and year first above written.

                             ALLION HEALTHCARE, INC.



                             By:
                                  --------------------------------------------
                                  Name:  Michael P.  Moran
                                  Title:  President and Chief Executive Officer








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</TEXT>
</DOCUMENT>
