Exhibit 10.3

SUBORDINATION AGREEMENT

This Subordination Agreement (this “Agreement”) is entered into as of the 30th
day of October, 2007, by and among Accentia Biopharmaceuticals, Inc., a Florida
corporation (the “Subordinated Lender”) and LV Administrative Services, Inc., a
Delaware corporation, as administrative agent and collateral agent for the
Creditor Parties (as defined in the Security Agreement referred to below) (the
“Agent” and together with the Creditor Parties, the “Senior Lenders” and each, a
“Senior Lender”). Unless otherwise defined herein, capitalized terms used herein
shall have the meaning provided such terms in the Security Agreement referred to
below.

BACKGROUND

WHEREAS, it is a condition to the Senior Lender’s making an investment in
Biovest International, Inc., a Delaware corporation (the “Company”) pursuant to,
and in accordance with, (i) that certain Note Purchase Agreement dated on or
about the date hereof by and between the Company and Valens U.S. SPV I, LLC
(“Valens U.S.”) (as amended, modified or supplemented from time to time, the
“Valens U.S. Note Purchase Agreement”); (ii) that certain Note Purchase
Agreement dated on or about the date hereof by and between the Company and
Valens Offshore SPV II, Corp. (“Valens Offshore”) (as amended, modified or
supplemented from time to time, the “Valens Offshore Note Purchase Agreement”;
and together with the Valens U.S. Note Purchase Agreement, individually, each a
“Note Purchase Agreement”, and collectively, the “Note Purchase Agreements”);
(iii) the Related Agreements referred to in each Note Purchase Agreement, and
(iv) that certain Master Security Agreement dated as of the date hereof by and
between the Company and Agent (as amended, modified or supplemented from time to
time, the “Security Agreement”); that the Subordinated Lender enter into this
Agreement; and

WHEREAS, the Subordinated Lender has made or will make loans to the Company; and

NOW, THEREFORE, the Subordinated Lender and the Senior Lenders agree as follows:

TERMS

1. All obligations of the Company and/or any of its affiliates to the Senior
Lenders, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent or now or hereafter existing, or due or to become due are
referred to as “Senior Liabilities”. Any and all loans and other financial
accommodations made by the Subordinated Lender to the Company and/or any of its
affiliates, together with all other obligations (whether monetary or otherwise)
of the Company and/or any of its affiliates to the Subordinated Lender (in each
case, including any interest, fees or penalties related thereto), howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent or now or hereafter existing, or due or to become due are referred to
as “Junior Liabilities”. It is expressly understood and agreed that the term
“Senior Liabilities”, as used in this Agreement, shall include, without
limitation, any and all interest, fees and penalties accruing on any of the
Senior Liabilities after the commencement of any proceedings referred to in
paragraph 4 of this Agreement, notwithstanding any provision or rule of law
which might restrict the rights of the Senior Lenders, as against the Company,
its affiliates or anyone else, to collect such interest, fees or penalties, as
the case may be.

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2. Except as expressly otherwise provided in this Agreement or as the Agent may
otherwise expressly consent in writing, the payment of the Junior Liabilities
shall be postponed and subordinated in right of payment and priority to the
payment in full of all Senior Liabilities. Furthermore, whether directly or
indirectly, no payments or other distributions whatsoever in respect of any
Junior Liabilities shall be made (whether at stated maturity, by acceleration or
otherwise), nor shall any property or assets of the Company or any of its
affiliates be applied to the purchase or other acquisition or retirement of any
Junior Liability until such time as the Senior Liabilities have been
indefeasibly paid in full.

3. The Subordinated Lender hereby subordinates all claims and security interests
it may have against, or with respect to, any of the assets of the Company and/or
any of its affiliates (the “Subordinated Lender Liens”), to the security
interests granted by the Company and/or any of its affiliates to the Agent, for
the ratable benefit of the Senior Lenders, in respect of the Senior Liabilities.
The Senior Lenders shall not owe any duty to the Subordinated Lender as a result
of or in connection with the Subordinated Lender Liens, including, without
limitation, any marshalling of assets or protection of the rights or interests
of the Subordinated Lender. The Agent shall have the exclusive right to manage,
perform and enforce the underlying terms of the Security Agreement, the
Documents and each other document, instrument and agreement executed from time
to time in connection therewith (collectively, the “Senior Security Agreements”)
relating to the assets of the Company and its affiliates and to exercise and
enforce its rights according to its discretion. The Subordinated Lender waives
all rights to affect the method or challenge the appropriateness of any action
taken by the Agent in connection with the Agent’s enforcement of its rights
under the Senior Security Agreements. Only the Agent shall have the right to
restrict, permit, approve or disapprove the sale, transfer or other disposition
of the assets of the Company or any of its affiliates. As between the Senior
Lenders and the Subordinated Lender, the terms of this Agreement shall govern
even if all or part of the Agent’s liens are avoided, disallowed, set aside or
otherwise invalidated.

4. In the event of any dissolution, winding up, liquidation, readjustment,
reorganization or other similar proceedings relating to the Company and/or any
of its affiliates or to its creditors, as such, or to its property (whether
voluntary or involuntary, partial or complete, and whether in bankruptcy,
insolvency or receivership, or upon an assignment for the benefit of creditors,
or any other marshalling of the assets and liabilities of the Company and/or any
of its affiliates, or any sale of all or substantially all of the assets of the
Company and/or any of its affiliates, or otherwise), the Senior Liabilities
shall first be paid in full before the Subordinated Lender shall be entitled to
receive and to retain any payment, distribution, other rights or benefits in
respect of any Junior Liability. In order to enable the Senior Lenders to
enforce their rights hereunder in any such action or proceeding, the Agent is
hereby irrevocably authorized and empowered in its discretion as attorney in
fact for the Subordinated Lender to make and present for and on behalf of the
Subordinated Lender such proofs of claim against the Company and/or its
affiliates as the Agent may deem expedient or proper and to vote such proofs of
claim in any such proceeding and to receive and collect any and all dividends or
other payments or disbursements made thereon in whatever form the same may be
paid or issued and to apply same on account of any the Senior Liabilities. In
the event, prior to indefeasible payment in full of the Senior Liabilities, the
Subordinated Lender shall receive any payment in respect of the Junior
Liabilities and/or in connection with the enforcement of the Subordinated
Lender’s rights and remedies against the Company and/or any of its affiliates,
whether arising in connection with the

 

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Junior Liabilities or otherwise, then the Subordinated Lender shall forthwith
deliver, or cause to be delivered, the same to the Agent in precisely the form
held by the Subordinated Lender (except for any necessary endorsement) and until
so delivered the same shall be held in trust by the Subordinated Lender as the
property of the Senior Lenders.

5. The Subordinated Lender will mark its/his books and records so as to clearly
indicate that its/his respective Junior Liabilities are subordinated in
accordance with the terms of this Agreement. The Subordinated Lender will
execute such further documents or instruments and take such further action as
the Agent may reasonably request from time to time to carry out the intent of
this Agreement.

6. The Subordinated Lender hereby waives all diligence in collection or
protection of or realization upon the Senior Liabilities or any security for the
Senior Liabilities.

7. The Subordinated Lender shall not, without the prior written consent of the
Agent: (a) attempt to enforce or collect any Junior Liability or any rights in
respect of any Junior Liability; or (b) commence, or join with any other
creditor in commencing, any bankruptcy, reorganization or insolvency proceedings
with respect to the Company and/or any of its affiliates.

8. The Senior Lenders, may, from time to time, at their sole discretion, and
without notice to the Subordinated Lender, take any or all of the following
actions: (a) retain or obtain a security interest in any property to secure any
of the Senior Liabilities; (b) retain or obtain the primary or secondary
obligation of any other obligor or obligors with respect to any of the Senior
Liabilities; (c) extend or renew for one or more periods (whether or not longer
than the original period), alter, increase or exchange any of the Senior
Liabilities, or release or compromise any obligation of any nature of any
obligor with respect to any of the Senior Liabilities; and (d) release its
security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Senior
Liabilities, or extend or renew for one or more periods (whether or not longer
than the original period) or release, compromise, alter or exchange any
obligations of any nature of any obligor with respect to any such property.

9. The Senior Lenders may, from time to time, whether before or after any
discontinuance of this Agreement, without notice to the Subordinated Lender,
assign or transfer any or all of the Senior Liabilities or any interest in the
Senior Liabilities; and, notwithstanding any such assignment or transfer or any
subsequent assignment or transfer of the Senior Liabilities, such Senior
Liabilities shall be and remain Senior Liabilities for the purposes of this
Agreement, and every immediate and successive assignee or transferee of any of
the Senior Liabilities or of any interest in the Senior Liabilities shall, to
the extent of the interest of such assignee or transferee in the Senior
Liabilities, be entitled to the benefits of this Agreement to the same extent as
if such assignee or transferee were a Senior Lender, as applicable; provided,
however, that, unless the Senior Lender that is the assignor and/or transferor
shall otherwise consent in writing, such Senior Lender shall have an unimpaired
right, prior and superior to that of any such assignee or transferee, to enforce
this Agreement, for the benefit of such Senior Lender, as to those of the Senior
Liabilities which such Senior Lender has not assigned or transferred.

 

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10. The Senior Lenders shall not be prejudiced in their rights under this
Agreement by any act or failure to act of the Subordinated Lender, or any
noncompliance of the Subordinated Lender with any agreement or obligation,
regardless of any knowledge thereof which any Senior Lender may have or with
which any Senior Lender may be charged; and no action of any Senior Lender
permitted under this Agreement shall in any way affect or impair the rights of
the Senior Lenders and the obligations of the Subordinated Lender under this
Agreement.

11. No delay on the part of any Senior Lender in the exercise of any right or
remedy shall operate as a waiver of such right or remedy, and no single or
partial exercise by any Senior Lender of any right or remedy shall preclude
other or further exercise of such right or remedy or the exercise of any other
right or remedy; nor shall any modification or waiver of any of the provisions
of this Agreement be binding upon any Senior Lender except as expressly set
forth in a writing duly signed and delivered on behalf of the Senior Lenders.
For the purposes of this Agreement, Senior Liabilities shall have the meaning
set forth in Section 1 above, notwithstanding any right or power of the
Subordinated Lender or anyone else to assert any claim or defense as to the
invalidity or unenforceability of any such obligation, and no such claim or
defense shall affect or impair the agreements and obligations of the
Subordinated Lender under this Agreement.

12. This Agreement shall continue in full force and effect after the filing of
any petition (“Petition”) by or against the Company and/or any of its affiliates
under the United States Bankruptcy Code (the “Code”) and all converted or
succeeding cases in respect thereof. All references herein to the Company and/or
Subsidiary shall be deemed to apply to the Company and such Subsidiary as
debtor-in-possession and to a trustee for the Company and/or such Subsidiary. If
the Company or any of its affiliates shall become subject to a proceeding under
the Code, and if the Senior Lenders shall desire to permit the use of cash
collateral or to permit or provide post-Petition financing from the Senior
Lenders (or an affiliate or a third party satisfactory to the Senior Lenders) to
the Company or any such Subsidiary under the Code, the Subordinated Lender
agrees as follows: (1) adequate notice to the Subordinated Lender shall be
deemed to have been provided for such consent or post-Petition financing if the
Subordinated Lender receives notice thereof three (3) business days (or such
shorter notice as is given to the Senior Lenders) prior to the earlier of
(a) any hearing on a request to approve such post-petition financing or (b) the
date of entry of an order approving same and (2) no objection will be raised by
the Subordinated Lender to any such use of cash collateral or such post-Petition
financing from the Senior Lenders (or an affiliate of the Senior Lenders).

13. This Agreement shall be binding upon the Subordinated Lender and upon the
heirs, legal representatives, successors and assigns of the Subordinated Lender
and the successors and assigns of the Subordinated Lender. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which together shall be deemed to constitute one agreement. It is
understood and agreed that if facsimile copies of this Agreement bearing
facsimile signatures are exchanged between the parties hereto, such copies shall
in all respects have the same weight, force and legal effect and shall be fully
as valid, binding, and enforceable as if such signed facsimile copies were
original documents bearing original signature.

 

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14. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED
ACCORDING TO, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS PROVISIONS THEREOF AND SHALL BE BINDING UPON THE PARTIES HERETO
AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. ANY ACTION BROUGHT CONCERNING THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE
COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT THE SENIOR LENDERS MAY CHOOSE TO WAIVE THIS PROVISION
AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. The individual(s) executing
this Agreement on behalf of the Subordinated Lender agree(s) to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorneys’ fees and
costs. Wherever possible each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.

[signature page follows]

 

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IN WITNESS WHEREOF, this Agreement has been made and delivered this 30th day of
October, 2007.

 

ACCENTIA BIOPHARMACEUTICALS, INC. By:  

/s/ Francis E. O’Donnell, Jr.

Name:   Frank O’Donnell, M.D. Title:   CEO and President LV ADMINISTRATIVE
SERVICES, INC., as Agent By:  

/s/ Patrick Regan

Name:   Patrick Regan Title:   Authorized Signatory VALENS OFFSHORE SPV II,
CORP., as a Creditor Party By:   Valens Capital Management, LLC,   its
investment manager By:  

/s/ Patrick Regan

Name:   Patrick Regan Title:   Authorized Signatory VALENS U.S. SPV I, LLC, as a
Creditor Party By:   Valens Capital Management, LLC,   its investment manager
By:  

/s/ Patrick Regan

Name:   Patrick Regan Title:   Authorized Signatory

[signatures continued on next page]

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Acknowledged and Agreed to by: BIOVEST INTERNATIONAL, INC. By:  

/s/ Steve Arikian

Name:   Steve Arikian, M.D. Title:   CEO and President

 

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