Exhibit 10.26

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT (this “Agreement”) is entered into as of the 17th
day of November, 2010, by and between Accentia Biopharmaceuticals, Inc., a
Florida corporation (the “Subordinated Lender”), and LV Administrative Services,
Inc., a Delaware corporation, as administrative and collateral agent for the
Lenders (as defined in the Security Agreement referred to below) (the “Agent”
and together with the Lenders, the “Senior Lenders” and each, a “Senior
Lender”). Unless otherwise defined herein, capitalized terms used herein shall
have the meaning ascribed to such terms in the Security Agreement.

BACKGROUND

WHEREAS, on November 10, 2008 (the “Petition Date”), Biovest International, Inc.
(“Biovest”) commenced a voluntary case for reorganization (the “Biovest Chapter
11 Case”) under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§
101 et seq. (the “Bankruptcy Code”), in the United States Bankruptcy Court for
the Middle District of Florida, Tampa Division;

WHEREAS, as of the Petition Date, Biovest was indebted to Laurus Master Fund,
Ltd. (In Liquidation), Valens U.S. SPV I, LLC, Valens Offshore SPV I, Ltd. and
Valens Offshore SPV II, Corp. (collectively, the “Prepetition Lenders”) in an
aggregate principal amount of $30,154,082.65, plus interest and other amounts
due thereon, according to proofs of claim filed by the Prepetition Lenders in
the Biovest Bankruptcy Cases (the “Prepetition Debt”);

WHEREAS, in connection with Biovest incurring the Prepetition Debt, Biovest and
Accentia issued to certain of the Prepetition Lenders warrants (the “Biovest
Warrants”) to acquire shares of the Biovest Common Stock as listed on Exhibit A
attached to the Security Agreement;

WHEREAS, in connection with Biovest incurring the Prepetition Debt, Biovest and
Accentia, pursuant to various agreements, granted to certain of the Prepetition
Lenders an aggregate royalty equal to 19.50% of the net sales and license
revenues from the Biovest Biologic Products received by Biovest (the “Biovest
Royalty”);

WHEREAS, in satisfaction of the Prepetition Debt, the cancellation of the
Biovest Warrants, and the modification of the Biovest Royalty, certain of the
Prepetition Lenders have agreed to accept allowed secured claims against Biovest
in the Biovest Chapter 11 Case in the aggregate amounts of $24,900,000.00 and
$4,160,000.00, respectively (the “Restructured Lenders Loans”), upon the terms
and conditions set forth herein and in the Confirmed Plan, and in connection
therewith the Senior Lenders and Biovest are entering into a Term Loan and
Security Agreement dated as of the date hereof (the “Security Agreement”);

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WHEREAS, as of the Petition Date, Biovest was indebted to the Subordinated
Lender in a principal amount of $11,991,510 (the “Accentia Loan”), and the
Accentia Loan is secured by a lien on substantially all of the assets of Biovest
junior only to the Lien securing the Prepetition Debt;

WHEREAS, pursuant to the Confirmed Plan, the Accentia Loan will be restructured
as a new secured loan in the principal amount of $11,991,510 plus interest (the
“Restructured Accentia Loan”);

WHEREAS, it is a condition to the Senior Lenders agreeing to the Restructured
Lenders Loans that the Subordinated Lender enter into this Agreement; and

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Subordinated
Lender and the Senior Lenders agree as follows:

TERMS

1.        All obligations of Biovest to the Senior Lenders arising out of or
related to the Security Agreement or the BVTI Term Notes, 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 Biovest, including, without limitation, the Restructured
Accentia Loan, together with all other obligations (whether monetary or
otherwise) of Biovest 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 Biovest or anyone else, to collect such
interest, fees or penalties, as the case may be.

2.        Except as expressly otherwise provided in this Agreement or the
Confirmed Plan or as the Agent may otherwise expressly consent in writing, and
except for any Permitted Payments (as defined below), 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, except for any
Permitted Payments, 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 Biovest be applied to the purchase or other acquisition or
retirement of any Junior Liabilities until such time as the Senior Liabilities
have been

 

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indefeasibly paid in full. Notwithstanding anything to the contrary contained in
this Agreement, the Subordinated Lender may elect, pursuant to the terms of the
Confirmed Plan, to convert all or any portion of the Junior Liabilities to
shares of Biovest Common Stock. For purposes of this Agreement, “Permitted
Payments” means (i) any payments made by Biovest to the Subordinated Lender
incident to the sharing of expenses between the companies and in respect of the
shared administrative and overhead costs of Biovest and the Subordinated Lender;
provided, however, that in no event shall any such payments exceed in any one
month more than $150,000 without the prior written consent of the Agent, which
consent shall not be unreasonably withheld if such payments are for healthcare
premiums, Biovest employee 401(k) contributions, shared salary expense, and
directors and officers liability insurance premiums; and (ii) any repayment of
any new loans made by the Subordinated Lender to Biovest after the date hereof,
up to a maximum amount equal to the difference between (x) $3,000,000 and
(y) the principal amount outstanding under the Exit Lender Credit Facility as of
the date hereof (as described in Section 2.2(a) of the Term A Notes).

3.        The Subordinated Lender hereby subordinates all claims and security
interests it may have against, or with respect to, any of the assets of Biovest
(the “Subordinated Lender Liens”), to the security interests granted by Biovest
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 Ancillary Agreements 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 Biovest 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 Biovest. 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 Biovest 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 Biovest, or any sale of all or substantially all of
the assets of Biovest, or otherwise), the Senior Liabilities shall first be paid
in full before the Subordinated Lender shall be entitled to receive and to

 

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retain any payment, distribution, other rights or benefits in respect of any
Junior Liabilities. 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 Biovest 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 the
same on account of any of 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 Biovest, whether arising in connection with the 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 books and records so as to
clearly indicate that its 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.        Until the Senior Liabilities are indefeasibly paid in full, 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 Liabilities; or (b) commence, or join with any other creditor in
commencing, any bankruptcy, reorganization or insolvency proceedings with
respect to Biovest.

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

 

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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, 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.

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 by or against Biovest under the Bankruptcy Code and all
converted or succeeding cases in respect thereof. All references herein to
Biovest shall be deemed to apply to Biovest as debtor-in-possession and to a
trustee for Biovest. If Biovest shall become subject to a proceeding under the
Bankruptcy Code, and if the Senior Lenders shall desire to permit the use of
cash collateral or to permit or provide post-petition financing from

 

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the Senior Lenders (or an affiliate or a third party satisfactory to the Senior
Lenders) to Biovest under the Bankruptcy 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 the
Senior Lenders and upon the successors and assigns of the Subordinated Lender
and the successors and assigns of the Senior Lenders. 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.

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 Subordinated
Lender agrees 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.

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IN WITNESS WHEREOF, this Subordination Agreement has been made and delivered as
of the date and year first written above

 

ACCENTIA BIOPHARMACEUTICALS INC. By:  

/s/ Samuel S. Duffey

  Name: Samuel S. Duffey   Title: President

LV ADMINISTRATIVE SERVICES, INC.,

as Collateral and Administrative Agent

By:  

/s/ Patrick Regan

  Name:  

Patrick Regan

  Title:  

Authorized Signatory

 

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