INTERCREDITOR AND SUBORDINATION AGREEMENT

Exhibit 10.3

INTERCREDITOR AND SUBORDINATION AGREEMENT

This Intercreditor and Subordination Agreement (the “Agreement”) is entered into this 29 th day of September 2008 by and between NOTRE DAME INVESTORS, INC., an Arizona corporation (“Notre Dame”), ROLAND OBERLIN, as Successor Escrow Agent (“Oberlin”), LAZARUS ENERGY LLC, a Delaware limited liability company (“Lazarus”) and FIRST INTERNATIONAL BANK (“Lender”). Oberlin and Notre Dame are hereafter collectively referred to as the “Subordinated Creditors”.

WHEREAS, on June 1, 2006, Lazarus, conveyed to Steven R. Brook, Trustee, that certain Deed of Trust, Security Agreement and Financing Statement recorded in Volume 1342, Page 695 of the Official Public Records of Wilson County, Texas (the “Subordinated Deed of Trust”), to secure that certain Promissory Note in the original principal sum of EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00), payable to the order of Notre Dame (the “Subordinated Note”), which said Subordinated Deed of Trust encumbers that certain real estate described in Exhibit “A” attached hereto and incorporated by reference herein (the “Real Property”) and that certain personal property of Lazarus more particularly described in the Subordinated Deed of Trust and in that certain UCC-1 Financing Statement No. 06-0019628294 (the “Personal Property”);

WHEREAS, the interest of Notre Dame in the Subordinated Note and Subordinated Deed of Trust was transferred and assigned to Steven R. Brook, Escrow Agent, pursuant to Transfer of Lien dated December 6, 2006, recorded in Volume 1375, Page 309 of the Official Public Records of Wilson County, Texas;

WHEREAS, the interest of Steven R. Brook, Escrow Agent, in the Subordinated Note and Subordinated Deed of Trust was transferred and assigned to Oberlin pursuant to Transfer of Lien dated August 27, 2007, recorded in Volume 1421, Page 845 of the Official Public Records of Wilson County, Texas. Oberlin is the current owner and holder of the Subordinated Note and Subordinated Deed of Trust;

WHEREAS, as of the date of this Agreement, Lazarus is indebted to Oberlin in the principal amount of Five Million, Six Hundred Thousand Dollars ($5,600,000.00) as evidenced by the Subordinated Note, and may from time to time become indebted to Subordinated Creditors in further amounts, including but not limited to the obligations imposed by those certain Forbearance Agreements entered into by and between Lazarus, Oberlin, and Notre Dame. All indebtedness and other obligations of Lazarus to Subordinated Creditors, now or hereafter existing, including, but not limited to the Subordinated Note are hereinafter collectively referred to as the “Subordinated Debt”.

WHEREAS, Lazarus has requested that Lender make a loan to Lazarus in the amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (“Lender’s Loan”), the proceeds of which will be used to partially satisfy the amount due and owing under the Subordinated Note; and

WHEREAS, Lender demands that, as a condition of granting Lazarus’s request that Lender advance such funds (or any portion thereof), it be secured by a first and superior lien upon the Real Property and the Personal Property, and Lazarus has requested Subordinated Creditors to subordinate their interests and liens in the Real Property and the Personal Property to the liens created in that certain Deed of Trust and that certain Security Agreement in favor of Lender as hereinafter set out; and

WHEREAS, Lender is unwilling to make the Lender’s Loan and advance any funds unless Lazarus and Subordinated Creditors will each agree to the various terms and conditions contained herein.

NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Lender to fund all, or a portion of, Lender’s Loan, Subordinated Creditors, and Lazarus each jointly and severally agree as follows:

All payments or distributions upon or with respect to the Subordinated Debt that are received (or retained) by any Subordinated Creditor contrary to the provisions of this Agreement shall be deemed to be held in trust by the recipient for the benefit of Lender until such payments or distributions are delivered to the Lender as required herein. Subordinated Creditors agree that any funds so received (or retained) shall be segregated from other funds and property held by Subordinated Creditors until paid over to Lender. Subordinated Creditors hereby represent to Lender that all payments required to be made on the Subordinated Debt to date, if any, have been made.

If to Subordinated Creditors:

Notre Dame Investors, Inc.

Attn: Roland Oberlin

5404 Holly

Bellaire, Texas 77401

Fax No.  ###-###-####

If to Lazarus:

Lazarus Energy LLC

Attention: Jonathan Carroll

2929 Allen Parkway, Suite 1400

Houston, Texas 77019

Fax No. (713)  ###-###-####

If to Lender:

First International Bank

Attn: John Shaver, Vice President

1912 Avenue K

Plano, Texas 75074

Fax No. (972)  ###-###-####

SUBORDINATED CREDITOR:
LENDER: Notre Dame Investors, Inc., an
International Bank LENDER: Arizona corporation						LAZARUS:   Lazarus Energy LLC, a Delaware limited liability company
By:
		Roland Oberlin, President				By:		Lazarus Energy Holdings LLC, a Delaware limited liability Company, its Sole Member
OBERL IN:
						By:
Roland Oberlin, as Successor Escrow Agent								Jonathan P. Carroll Title: Director
By:
		John Shaver, Vice-President

STATE OF TEXAS

COUNTY OF HARRIS.

BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared Roland Oberlin, President of Notre Dame Investors, Inc., an Arizona corporation, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of September 2008.

STATE OF TEXAS

COUNTY OF DALLAS §

BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared Roland Oberlin, as Successor Escrow Agent known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of September 2008.

STATE OF TEXAS

COUNTY OF HARRIS §

BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared John P. Carroll, Sr. , Director of Lazarus Energy Holdings LLC, a Delaware limited liability company, sole Member of Lazarus Energy LLC, a Delaware limited liability company, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE,             this 29th day of September 2008.

PAGE 6