TRGL Toreador Resources Corp. (MM)

 

The following summary highlights only selected information contained elsewhere in this proxy statement/prospectus and may not contain all the information that may be important to you. Accordingly, you are encouraged to read this proxy statement/prospectus carefully and in its entirety, including its annexes and the documents incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” on page 170. In addition, definitions for certain terms relating to the oil and gas business can be found in “Glossary of Oil and Gas Terms” beginning on page 171.

 

References to “we” or “our” and other first person references in this proxy statement/prospectus refer to both Toreador and ZaZa, before completion of the transactions. We refer to the new holding company in this proxy statement/prospectus as “New ZaZa.”

 

ZaZa Energy, LLC

 

ZaZa, a Texas limited liability company, is a privately-held independent exploration and production company focused on the exploration and development of unconventional onshore oil and gas resources in the United States of America. Entities controlled by Todd Alan Brooks, John E. Hearn Jr. and Gaston L. Kearby, the managing partners of ZaZa, each own one-third of the outstanding limited liability company interests of ZaZa. ZaZa’s operations are concentrated in South Texas, including its largest exploration area in the core area of the Eagle Ford shale formation and in the eastern extension of the Eagle Ford/Woodbine formation, which we refer to as the “Eaglebine.” As of September 30, 2011, ZaZa had accumulated lease acreage through a joint venture with Hess Corporation of approximately 122,000 gross acres (approximately 12,200 net acres), and had also accumulated approximately 82,000 gross acres (approximately 60,000 net acres) in the Eaglebine formation, which acreage is not part of its joint venture. ZaZa was formed in March 2009 primarily to acquire and develop unconventional oil and gas resources. ZaZa has grown its existing property base by developing and exploring its acreage, purchasing new undeveloped leases, and acquiring oil and gas producing properties and drilling prospects from third parties. ZaZa’s headquarters are located at 1301 McKinney Street, Suite 2850, Houston, Texas 77010 (telephone number: (713) 595-1900). ZaZa also has a field office in Corpus Christi, Texas.

 

Toreador Resources Corporation

 

Toreador is an independent energy company engaged in the exploration and production of crude oil with interests in developed and undeveloped oil properties in the Paris Basin, France. Toreador currently operates solely in the Paris Basin, which covers approximately 170,000 km ² of northeastern France, centered 50 to 100 km east and south of Paris. At September 30, 2011, Toreador held interests in approximately 997,000 gross exploration acres (awarded and pending publication). According to Gaffney, Cline & Associates Ltd, an independent petroleum and geological engineering firm, or Gaffney Cline, as of December 31, 2010, Toreador’s proved reserves were 5.5 MMbbls, Toreador’s proved plus probable reserves were 9.1 MMbbls and Toreador’s proved plus probable plus possible reserves were 13.9 MMbbls. As of September 30, 2011, production from Toreador’s two conventional oilfield areas in the Paris Basin — the Neocomian Complex and Charmottes oil fields — represented a majority of its total revenue and substantially all of its sales and other operating revenue. Toreador intends to maintain production from these mature assets using suitable enhanced oil recovery techniques. In addition to this production base, Toreador has identified several additional conventional targets on all exploration permits, including the La Garenne field, which is the first of these targets, and for which Toreador intends to formulate a development plan. Toreador is also focused on executing with a subsidiary of Hess Corporation (“Hess”), Toreador’s strategic partner, a proof of concept program by drilling, completing and testing pilot wells to evaluate the geological and economic potential of the source rocks in the Paris Basin Liassic. The proof of concept program is the plan by which Toreador and Hess expect to drill and test six or more exploration wells to determine the commercial viability of oil production from the Liassic source rock in the Paris Basin.

A French law that went into effect on July 13, 2011 bans the use of hydraulic fracturing for oil and gas extraction. This law does not, however, prevent implementation of the proof of concept program being executed by Toreador and Hess as this program does not call for hydraulic fracturing. Toreador believes, however, that at the current level of technical know-how, there are significant uncertainties associated with extraction technologies that can be used for production in the Paris Basin Liassic and, as such, hydraulic fracturing is the most economically viable extraction method for production in the Paris Basin Liassic. Although the French hydraulic fracturing ban is expected to be reviewed on an annual basis by the French parliament, a new law would need to be enacted to allow for hydraulic fracturing in France. Unless the French government repeals its ban on hydraulic fracturing or another economically viable extraction method is developed or improved, Toreador believes it will be difficult to commercially produce any oil it finds in the Paris Basin Liassic.

 

Toreador’s common stock is traded on the Nasdaq Global Market under the trading symbol “TRGL.” Toreador’s principal executive office is located at c/o Toreador Holding SAS, 5 rue Scribe, 75009 Paris, France (telephone number: +33 1 47 03 34 24). Toreador’s office in the United States is located at 13760 Noel Road, Suite 1100, Dallas, Texas, 75240-1383 (telephone number: (214) 559-3933).

 

Additional information about Toreador and its subsidiaries is included in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” on page 170.

 

ZaZa Energy Corporation

 

New ZaZa was formed for the purpose of being a holding company of both Toreador and ZaZa from and after completion of the transactions contemplated by the merger agreement (“closing”). New ZaZa is currently owned one-half by Toreador and one-half by ZaZa. New ZaZa has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

New ZaZa’s principal executive offices are located at c/o ZaZa Energy, LLC, 1301 McKinney Street, Suite 2850, Houston, Texas 77010 (telephone number: (713) 595-1900).

 

Thor Merger Sub Corporation

 

Thor Merger Sub Corporation, a Delaware corporation and a direct, wholly owned subsidiary of New ZaZa (“Thor Merger Sub”), was formed solely for the purpose of consummating the merger of Thor Merger Sub with and into Toreador. Thor Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

Thor Merger Sub’s office is located at c/o Toreador Holding SAS, 5 rue Scribe, 75009 Paris, France (telephone number: +33 1 47 03 34 24).

 

On August 9, 2011, Toreador entered into the merger agreement with ZaZa, New ZaZa and Thor Merger Sub. Pursuant to the merger agreement, Thor Merger Sub will merge with and into Toreador, with Toreador as the surviving corporation and becoming a wholly owned subsidiary of New ZaZa. In the merger, each outstanding share of Toreador common stock will be converted into the right to receive one share of New ZaZa common stock.

 

Simultaneously with the merger, pursuant to a contribution agreement entered into concurrently with the merger agreement, the three holders of the limited liability company interests of ZaZa will together contribute to New ZaZa, directly or indirectly, all of the outstanding limited liability company interests of ZaZa in exchange for a total of approximately 75,976,851 shares of New ZaZa common stock and $45.2 million in cash and/or newly issued subordinated secured promissory notes of New ZaZa. Each of the three holders of the ZaZa limited liability company interests will receive approximately 25,325,617 shares of New ZaZa common stock as a result of the contribution and $15.067 million in cash and/or newly issued subordinated

secured promissory notes of New ZaZa. The subordinated secured promissory notes will bear interest at a rate of 8% per annum, will require New ZaZa to make monthly interest payments on the last day of each calendar month and will mature on the fourth anniversary of the closing, subject to mandatory prepayments in specified circumstances. They will also be secured by the limited liability company interests of ZaZa held by New ZaZa after the transactions and subordinated to up to $150 million of future senior indebtedness of New ZaZa. In this proxy statement/prospectus, we refer to the $45.2 million in cash and/or subordinated secured promissory note consideration as the “ZaZa non-equity consideration.” As described below under “Key Terms of Transaction Agreements — Covenant with Respect to the Minimum Cash Condition,” the ZaZa non-equity consideration will be paid in the form of subordinated secured promissory notes, rather than in the form of cash, if and to the extent that the payment of the ZaZa non-equity consideration in cash would give rise to a failure of the minimum cash condition described below under “Description of the Merger Agreement — Conditions to the Transactions.” The ZaZa non-equity consideration will be paid in the form of cash only if and to the extent that the payment of the ZaZa non-equity consideration in cash would not give rise to a failure of the minimum cash condition.

 

Simultaneously with the merger, pursuant to a contribution agreement entered into concurrently with the merger agreement, the holders of net profits interests in ZaZa have agreed to exchange all of the outstanding net profits interests in ZaZa in exchange for $4.8 million in cash.

 

Immediately following the merger and contributions described above, Toreador and ZaZa will be wholly owned subsidiaries of New ZaZa. After completion of the transactions, the former Toreador stockholders and the former holders of limited liability company interests in ZaZa will own 25% and 75%, respectively, of the outstanding shares of New ZaZa common stock. For additional information on the transactions, see “The Transactions” beginning on page 53, and for additional information on the merger agreement and the related transaction documents, see “The Agreements” beginning on page 86.

 

New ZaZa’s strategic objectives for the 24 months after closing consist of three key components:

 

 

Execution of New ZaZa’s Existing Portfolio of Drilling Opportunities

 

New ZaZa expects to maintain financial discipline and prudent leverage ratios to allow it to execute on its existing portfolio of drilling opportunities while seeking to maximize returns. Subject to the limitations of our agreements with our joint venture partners, in the case of the Paris Basin and the Eagle Ford, and the availability of financing or pursuing a joint venture in the Eaglebine, we intend to do the following:

 

 

 

 

 

 

For additional information about our current joint venture agreements, see “ZaZa Business, Industry & Properties — ZaZa’s Area of Operations — Eaglebine Shale” on page 122. For additional information about our plans to raise additional financing or identify new joint venture partners, see “ZaZa Management’s Discussion and Analysis — Liquidity and Capital Resources — Capital Resources After the Completion of the Transactions with Toreador” beginning on page 141.

 

We expect the costs of the foregoing programs (other than the contemplated conventional drilling one rig program in the Paris Basin and the contemplated one rig program in the Eaglebine) to be funded, or “carried,” by Toreador’s and ZaZa’s current joint venture partner under their existing joint venture arrangements. We expect the costs associated with the contemplated one rig programs in the Paris Basin and the Eaglebine to be between $25 million and $35 million during 2012. New ZaZa’s ability to implement these one rig programs will be dependent on the availability of cash flow from operations or bonus income it receives from its joint venture with Hess or its ability to obtain financing through borrowings, capital market transactions or agreements with joint venture partners. We can provide no assurance that New ZaZa will be able to successfully obtain the necessary financing or joint venture partners for the one rig programs.

 

Expansion of New ZaZa’s Existing Portfolio

 

New ZaZa’s growth strategy includes acquiring oil and gas properties, subject to the availability of financing, including:

 

 

 

 

The cost of implementing the forgoing programs will depend on the extent to which acquisition or farm-in opportunities become available. However, if such opportunities do become available, the cost of pursuing them could be significant. New ZaZa’s ability to pursue any such opportunities that become available will be dependent on its ability to obtain financing through borrowings, capital market transactions or agreements with joint venture partners. We can provide no assurance that New ZaZa will have the necessary cash available or be able to successfully obtain the necessary financing or joint venture partners to pursue such opportunities.

 

Consolidation and Integration of New ZaZa’s Operations

 

 

After careful consideration, the members of Toreador’s board of directors unanimously approved the merger agreement and the related transaction agreements. For factors considered by the Toreador board of directors in reaching its decision to approve the merger agreement and the related transaction agreements, see “The Transactions — Toreador’s Reasons for the Transactions and Recommendation of Toreador’s Board of Directors” beginning on page 65. The board of directors of Toreador unanimously recommends that Toreador stockholders vote “FOR” the approval of the merger agreement.

 

On August 8, 2011, RBC Capital Markets, LLC, or RBC, delivered its oral opinion, subsequently confirmed in a written opinion dated August 9, 2011, to the Toreador board of directors to the effect that, as of such date and based upon and subject to the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC set forth in its written opinion, the exchange ratio of one share of New ZaZa for each outstanding Toreador share in the merger was fair, from a financial point of view, to holders of Toreador common stock. The full text of RBC’s written opinion, dated August 9, 2011, which, among other things, sets forth the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC in connection with its opinion, is attached to this proxy statement/prospectus as Annex B. RBC provided its opinion for the information and assistance of the Toreador board of directors in connection with its consideration of the proposed transactions. All advice and opinions (written and oral) rendered by RBC were intended for the use and benefit of the Toreador board of directors. The RBC opinion was not a recommendation to any stockholder as to how such stockholder should vote with respect to the merger or any other proposal to be voted upon by the stockholders of Toreador in connection with the transactions. Toreador encourages its stockholders to read the RBC opinion in its entirety. See “The Transactions — Opinion of Toreador’s Financial Advisor” beginning on page 68.

 

As more fully described in this proxy statement/prospectus and as set forth in the merger agreement, the consummation of the transactions depends on a number of conditions being satisfied or waived. These conditions include:

 

 

 

 

Toreador’s obligation to consummate the merger and the obligation of the equity holders of ZaZa to consummate the contribution transactions contemplated by the merger agreement are subject to certain additional customary conditions, including material accuracy of representations and warranties of the other party, performance by the other party of its covenants in all material respects and that no material adverse effect with respect to Toreador or ZaZa has occurred.

In addition, each of Toreador’s and ZaZa’s obligations to consummate the transactions contemplated by the merger agreement is subject to the condition that the sum of the following amounts is not less than $10 million:

 

 

We refer to this condition as the “minimum cash condition.” Toreador and ZaZa estimate that New ZaZa, Toreador and/or ZaZa may need to raise up to $66.5 million of financing, less cash on hand at the closing, for the minimum cash condition to be satisfied. The pro forma combined balance sheet shows approximately $17.7 million of unrestricted cash (excluding cash committed to financing for ZaZa’s joint venture partner) as of September 30, 2011. However, cash on hand fluctuates during the course of the year and, as such, the amount of cash that Toreador and ZaZa will have on hand at closing is subject to a variety of factors, many of which are beyond the control of Toreador and ZaZa. Accordingly, the cash on hand at closing may be substantially less than estimated. Although we believe we should be able to raise any required financing at or prior to closing, we cannot provide any assurance that we will be successful in doing so, or that, if we are able to raise this financing, it will be on favorable terms.

 

For additional information relating to the conditions to the consummation of the transactions, see “The Agreements — Description of the Merger Agreement — Conditions to the Transactions” beginning on page 97.

 

Covenant with Respect to the Minimum Cash Condition

 

Toreador and ZaZa have agreed to use their reasonable best efforts to retain cash as reasonably necessary to satisfy the minimum cash condition. In addition, under the terms of the contribution agreement with the holders of the ZaZa limited liability company interests, the ZaZa non-equity consideration will be paid in the form of subordinated secured promissory notes, rather than in the form of cash, if and to the extent that the payment of the ZaZa non-equity consideration in cash would give rise to a failure of the minimum cash condition.

 

Since its formation in March 2009, ZaZa has been classified as a partnership for tax purposes and all of ZaZa’s net income for federal income tax purposes is allocable to, and reportable on the federal income tax returns of, the holders of ZaZa’s limited liability company interests. ZaZa’s limited liability company agreement contemplates that ZaZa would make tax distributions to holders of ZaZa’s limited liability company interests in an amount equal to 35% of ZaZa’s net income. However, ZaZa has not made all of these tax distributions.

 

Under the terms of the merger agreement, ZaZa is permitted at any time to make tax distributions to the holders of ZaZa’s limited liability company interests with respect to the net income of ZaZa for the period from March 2009 through December 31, 2010, even if such distributions would result in a failure to satisfy the minimum cash condition. Such unpaid tax distributions are estimated by ZaZa to be approximately $1.1 million in the aggregate. In addition, on or after January 14, 2012, ZaZa is permitted to make tax distributions to the holders of ZaZa’s limited liability company interests with respect to the net income of ZaZa for the periods after December 31, 2010 and prior to closing, even if such distributions would result in a failure to satisfy the minimum cash condition. The tax distributions in respect of the period from January 1, 2011 through December 31, 2011 are estimated by ZaZa to be approximately $1.5 million in the aggregate.

For additional information on these provisions and other covenants contained in the merger agreement, see “The Agreements — Description of the Merger Agreement — Conduct of ZaZa’s and Toreador’s Businesses Pending the Merger” beginning on page 90.

 

No Solicitation

 

Toreador, ZaZa and their respective subsidiaries and representatives, among other things:

 

 

Termination of the Merger Agreement; Termination Fee; Reimbursement of Expenses

 

The merger agreement provides for certain termination rights for Toreador and ZaZa, including the right of either party to terminate if the transactions have not been consummated by June 30, 2012, the stockholders of Toreador do not approve the merger agreement, the proposed transactions are prohibited by a permanent order or injunction of a U.S. or French court, or the other party breaches any of its representations, warranties or covenants in the merger agreement, and, as a result, the closing conditions relating to the accuracy of the other party’s representations and warranties or its compliance with its covenants cannot be satisfied and such breach is not curable or cured within a certain period.

 

If the board of directors of Toreador fails to recommend that Toreador’s stockholders vote to approve the merger agreement or withdraws its recommendation in favor of the merger agreement, then ZaZa has the right to terminate the merger agreement and Toreador will be required to pay ZaZa a termination fee of $3.5 million. Prior to the vote of its stockholders at the Special Meeting, Toreador has the right to terminate the merger agreement and enter into an agreement for an unsolicited alternative business combination transaction that the board of directors of Toreador determines to be superior to the proposed transactions, so long as Toreador complies with certain notice and other requirements set forth in the merger agreement and Toreador pays ZaZa a termination fee of $3.5 million. A “superior proposal” for Toreador means a bona fide written proposal or offer made by a third party, that if consummated would result in such third party owning, directly or indirectly, more than 50% of the shares of Toreador common stock then outstanding (or of the surviving entity or its direct or indirect parent) or all or substantially all of the assets of Toreador, which the board of directors of Toreador determines in good faith, after consultation with outside counsel and a financial advisor, to be more favorable to the Toreador stockholders than the transactions with ZaZa, taking into account the terms and conditions of such proposal and the merger agreement and any proposal or offer of ZaZa to amend the terms of the merger agreement or the merger, and believes is reasonably capable of being completed, taking into account all relevant factors.

 

In addition, if Toreador or ZaZa terminates the merger agreement because the other party breaches any of its representations, warranties or covenants in the merger agreement, and, as a result, the closing conditions relating to the accuracy of the other party’s representations and warranties or the other party cannot comply with its covenants, then the breaching party will be required to reimburse the terminating party’s out of pocket expenses up to a maximum of $750,000.

 

For additional information on Toreador’s right to terminate the merger agreement in connection with a superior proposal, see “The Agreements — Description of the Merger Agreement — Termination by Toreador in Connection with a Superior Proposal” beginning on page 95. For additional information on termination fees and reimbursement of expenses, see “The Agreements — Description of the Merger Agreement — Termination Fee and Expenses” beginning on page 99.

 

Toreador and ZaZa have agreed to use their reasonable best efforts to obtain as promptly as practicable all third party or governmental consents, approvals, permits or authorizations required for the consummation of the transactions. These approvals include the clearance of the French Bureau of Exploration and Production of Hydrocarbons in accordance with article 43.2 and 43.4 of Decree no. 2006-648, dated June 2, 2006, regarding

hydrocarbon permits and underground storage permits. We obtained this clearance on October 25, 2011. In using their reasonable best efforts, neither Toreador nor ZaZa will be required to agree to material divestitures, licenses, hold separate agreements or similar actions.

 

For additional information relating to the regulatory approvals, see “The Agreements — Description of the Merger Agreement — Other Covenants and Agreements — Efforts to Consummate” beginning on page 96.

 

The Internal Revenue Service has issued to New ZaZa a private letter ruling, dated November 30, 2011, that provides, among other, things that for U.S. federal income tax purposes, the receipt of New ZaZa common stock in exchange for Toreador common stock pursuant to the merger will qualify as a nonrecognition transaction under Section 351 of the Internal Revenue Code of 1986, as amended. This ruling also states that a holder of shares of Toreador common stock generally will not recognize gain or loss for U.S. federal income tax purposes upon receipt of shares of New ZaZa common stock in exchange for shares of Toreador common stock in the merger, except with respect to any cash received in lieu of a fractional share of New ZaZa common stock.

 

All holders of shares of Toreador common stock should read the section entitled “Material U.S. Federal Tax Consequences” beginning on page 83 for a more complete discussion of the U.S. federal income tax consequences of the merger, as well as the consequences of owning and disposing of shares of New ZaZa common stock. In addition, all holders of shares of Toreador common stock are urged to consult with their tax advisors regarding the tax consequences of the merger to them, including the effects of U.S. federal, state and local, non-U.S. and other tax laws.

 

The rights of Toreador stockholders are governed by Toreador’s restated certificate of incorporation, as amended, its fourth amended and restated bylaws and the laws of the State of Delaware. Upon consummation of the transactions contemplated by the merger agreement, the Toreador stockholders will become stockholders of New ZaZa and, accordingly, their rights will be governed by the restated certificate of incorporation of New ZaZa that will be adopted at such time, and the amended and restated bylaws that will be adopted at such time, and the laws of the State of Delaware. Although the rights and privileges of Toreador stockholders are, in many instances, comparable to those of New ZaZa stockholders, there are some differences. For a summary of the material differences between the rights of Toreador stockholders and the rights of New ZaZa stockholders, see “Comparison of Stockholder Rights” beginning on page 163.

 

Upon the closing, New ZaZa’s initial board of directors will consist of nine directors, with seven to be designated by ZaZa and two to be designated by Toreador. It is expected that Toreador will designate Adam Kroloff, the current Chairman of the Board of Toreador, and Bernard de Combret, a current independent director of Toreador, as its designees. It is expected that ZaZa will designate as its designees Todd Alan Brooks, John E. Hearn Jr. and Gaston L. Kearby, the three current managing partners of ZaZa; Craig M. McKenzie, the current President and Chief Executive Officer of Toreador; Travis H. Burris; Fred S. Zeidman; and Herbert C. Williamson III, a current independent director of Toreador.

 

After the closing, the board of directors will be determined as set forth in a stockholders’ agreement entered into between New ZaZa and the three current holders of the limited liability company interests of ZaZa, which we refer to as the “current ZaZa owners” in this proxy statement/prospectus. Under the stockholders’ agreement, for three years after the closing, the board of directors will consist of nine members (unless changed by a vote of at least 75% of the directors). During the three years following the closing, the current ZaZa owners will be entitled to designate a proportional number of directors to the board (but not more than seven) based upon the current ZaZa owners’ (and their permitted transferees’) percentage ownership of New ZaZa. During such period, as long as the current ZaZa owners (and their permitted transferees) own at least 72.2% of the outstanding shares of New ZaZa common stock, they will continue to have the right to

designate seven directors. The remaining directors of New ZaZa will be nominated by a nominating committee consisting of two directors selected by the Toreador designees (and their successors) and one independent director selected by the current ZaZa owners. During the three years after closing, the current ZaZa owners will be required to vote their ZaZa shares in favor of the nominees of the nominating committee. After the third anniversary of the closing, there will be no limitation on the number of directors of New ZaZa that the current ZaZa owners may nominate and elect.

 

Since the current ZaZa owners will beneficially own more than a majority of the voting power for the election of directors, New ZaZa will be deemed to be a “controlled company” for purposes of Nasdaq Rule 5615(c)(2). As a result, New ZaZa may elect under the Nasdaq rules to be exempt from certain corporate governance requirements, including requirements that (1) a majority of the board of directors consist of independent directors, (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors and (3) director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating committee composed solely of independent directors.

 

It is expected that, upon consummation of the transactions, Craig M. McKenzie, the current President and Chief Executive Officer of Toreador, will serve as the President and Chief Executive Officer of New ZaZa.

 

For more information on the new directors and management of New ZaZa, see “New ZaZa Executive Officers and Directors” beginning on page 155.

 

Each of the entities that comprise the three current ZaZa owners is controlled by one of the three current managing partners of ZaZa, each of whom will serve as a director and executive officer of New ZaZa.

 

Pursuant to a contribution agreement entered into in connection with the merger agreement, each of the current ZaZa owners will contribute, directly or indirectly, to New ZaZa one-third of the outstanding limited liability company interests of ZaZa in exchange for approximately 25,325,617 shares of New ZaZa common stock representing 25% of the outstanding shares of New ZaZa immediately after the transactions and $15.067 million (or $45.2 million in the aggregate) in cash and/or newly issued subordinated secured promissory notes of New ZaZa.

 

In addition, under the terms of the merger agreement, prior to the consummation of the proposed transactions, ZaZa is permitted to:

 

 

 

 

 

To the extent that any portion of the member loans are not made or paid by ZaZa prior to closing, at closing ZaZa will issue secured subordinated promissory notes to the holders of ZaZa’s limited liability company interests with an aggregate outstanding principal amount equal to the unpaid member loans. In addition, to the extent that the additional compensation is not paid by ZaZa prior to closing, at closing New ZaZa will issue secured subordinated promissory notes to the managing partners with an aggregate principal amount equal to the unpaid additional compensation. These secured subordinated promissory notes will have the same terms as the up to $45.2 million of secured subordinated promissory notes that New ZaZa may issue in exchange for the contribution of the limited liability company interests of ZaZa, except that the secured subordinated promissory notes issued by ZaZa in respect of unpaid member loans will be secured by ZaZa’s assets (other than assets relating to oil and gas production) and the secured subordinated promissory notes issued by New ZaZa in respect of ZaZa’s unpaid additional compensation will be secured by all of the outstanding shares of Toreador common stock acquired by New ZaZa in the merger (in addition to the limited liability company interest of ZaZa contributed to New ZaZa). New ZaZa estimates that, if New ZaZa, Toreador and ZaZa raise no more than the minimum amount of financing necessary to satisfy the minimum cash condition and the closing occurs in February 2012, New ZaZa and ZaZa will be required to issue at closing secured subordinated promissory notes in an aggregate principal amount of approximately $20.5 million, in addition to the $45.2 million of secured subordinated promissory notes.

 

For additional information on the interests of ZaZa Management in the transaction, see “The Transactions — Interests of the Current ZaZa Owners and the ZaZa Managing Partners in the Transactions” beginning on page 80.

 

Simultaneously with the execution of the merger agreement, each of the three ZaZa managing partners (referred to as a “restricted person”) entered into a separate non-competition agreement with New ZaZa. The non-competition agreements provide, among other things and with certain exceptions, that each of the restricted persons and his controlled affiliates may not engage in, carry on or assist in, any oil or gas business in specified areas on the Eagle Ford and Eaglebine resource plays in Texas and the Paris Basin in France or acquire oil and gas interests in, or acquire interests in any businesses with oil and gas interests in, those specified areas. The non-competition agreement with each restricted person lasts only until the later of the termination of the restricted person’s employment with New ZaZa or three years after the consummation of the transaction. For additional information on the non-competition agreements, see “The Agreements — Description of the Non-Competition Agreements” beginning on page 106.

 

Certain members of Toreador’s management and the board of directors may be deemed to have interests in the transactions contemplated by the merger agreement that are different from or in addition to their interests as Toreador stockholders generally. As of January 11, 2012, the directors and executive officers of Toreador beneficially owned, in the aggregate, 141,536 Toreador restricted shares, which will vest upon completion of the merger. In addition, assuming that the transactions are completed on February 15, 2012 and the executive officers experience a qualifying termination immediately thereafter, (A) the amount of cash severance that will be payable to Craig McKenzie, President and Chief Executive Officer of Toreador, and Marc Sengès, Chief Financial Officer of Toreador, is approximately $1,732,920 and $592,303, respectively; and (B) the value of the continued or enhanced medical and other welfare benefits that will be payable to Mr. McKenzie is approximately $35,736. Mr. McKenzie and Mr. Sengès have 104,869 shares and 36,667 of unvested restricted stock, respectively, which would also entitle them to approximately $361,798 and

$126,501, respectively, representing the value of their restricted stock awards that are to be accelerated upon the consummation of the transactions (regardless of whether there is a qualifying termination).

 

For additional information on interests of Toreador directors and management in the transactions, see “The Transactions — Interests of Toreador Directors and Officers in the Transactions” beginning on page 78.

 

For information on the percentage of outstanding shares entitled to vote at the Special Meeting that are held by Toreador’s directors and executive officers as of the record date and their present intentions with regard to how such shares will be voted at the Special Meeting, see “The Special Meeting — Voting by Toreador’s Directors and Executive Officers” beginning on page 49.

 

Under Delaware law, the holders of shares of Toreador common stock are not entitled to any dissenters’ rights or rights of appraisal in connection with the merger.

 

ZaZa and Toreador are providing the following financial information to aid you in your analysis of the financial aspects of the transaction. The selected historical financial data of ZaZa as of December 31, 2010 and as of December 31, 2009, and for the year ended December 31, 2010 and for the period from March 4, 2009 (inception) to December 31, 2009, and of Toreador as of, and for the years ended, December 31, 2010, 2009, 2008, 2007 and 2006 have been derived from ZaZa’s and Toreador’s respective audited historical financial statements. The audited historical financial statements of ZaZa are included in this proxy statement/prospectus, and Toreador’s historical audited financial statements for the years ended December 31, 2010, 2009 and 2008, and as of December 31, 2010 and 2009 are incorporated by reference into this proxy statement/prospectus. The following selected historical financial data for ZaZa as of, and for the nine months ended, September 30, 2011 and 2010, has been derived from ZaZa’s unaudited interim financial statements contained in this proxy statement/prospectus and the following selected historical financial data for Toreador as of, and for the nine months ended, September 30, 2011 and 2010 have been derived from Toreador’s unaudited interim consolidated financial statements contained in Toreador’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, which is incorporated by reference into this proxy statement/prospectus. Results of interim periods are not necessarily indicative of the results expected for a full year or for future periods. In the opinion of Toreador management, the unaudited consolidated financial statements referenced above include all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for the interim periods. In the opinion of ZaZa management, the unaudited financial statements referenced above include all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for the interim periods. This information is only a summary, and you should read it in conjunction with the historical financial statements of ZaZa and the related notes included in this proxy statement/prospectus and the historical consolidated financial statements of Toreador and the related notes that Toreador has previously filed with the SEC and which are incorporated into this proxy statement/prospectus by reference. See “Where You Can Find More Information” on page 170.

Selected Historical Financial Data of ZaZa

 

 

 

On June 14, 2007, the Board of Directors of Toreador authorized management to sell all of Toreador’s oil and gas properties in the United States. The sale of these properties completed the divestiture of Toreador’s non-core U.S. assets and allowed Toreador to focus exclusively on its non-U.S. operations. The sale was closed on September 1, 2007 for $19.1 million, which resulted in a pre-tax gain of $9.2 million.

 

In the fourth quarter of 2008 and during the first quarter of 2009, Toreador farmed out or sold all of its working interests in Romania to three different companies and closed its office; thus, Toreador no longer has any operational involvement in Romania. This resulted in a gain of $5.8 million, which was recorded in the first quarter of 2009.

 

On March 3, 2009, Toreador completed the sale of a 26.75% interest in the South Akcakoca Sub-Basin project associated licenses located in the Black Sea offshore Turkey, to Petrol Ofisi for $55 million. In accordance with the revised assignment announced on February 3, 2009, $50 million of the proceeds was paid by Petrol Ofisi on March 3, 2009, and the remaining $5 million was paid on September 1, 2009. There was no gain or loss resulting from this sale.

 

On September 30, 2009, Toreador entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Tiway Oil BV, a company organized under the laws of the Netherlands (“Tiway”), and Tiway Oil AS, a company organized under the laws of Norway, pursuant to which Toreador agreed to sell 100% of the outstanding shares of Toreador Turkey Ltd. (“Toreador Turkey”) to Tiway for total consideration consisting of: (1) a cash payment of $10.5 million to be paid at closing, (2) exploration success payments dependent upon certain future commercial discoveries as provided in the Share Purchase Agreement, up to a maximum aggregate consideration of $40 million, and (3) future quarterly 10% pre-tax net profit interest payments if a field goes into production that was discovered by an exploration well drilled within four years of closing on certain of the licenses then still held by Tiway. The sale of Toreador Turkey was completed on October 7, 2009 and resulted in a gain of $1.8 million.

 

On September 30, 2009, Toreador entered into a Quota Purchase Agreement (the “Quota Purchase Agreement”) with RAG (Rohöl-Aufsuchungs Aktiengesellschaft), a corporation organized under the laws of Austria (“RAG”), pursuant to which Toreador agreed to sell 100% of its equity interests in Toreador Hungary Limited (“Toreador Hungary”) to RAG for total consideration consisting of (1) a cash payment of $5.4 million (€3.7 million) paid at closing, (2) $435,000 (€300,000), which was held back subject to a post-closing adjustment and was paid to us on November 5, 2009 and (3) a contingent payment of $2.9 million (€2 million) to be paid upon post-transaction completion of agreements relating to certain assets of Toreador Hungary. The sale of Toreador Hungary was completed on September 30, 2009 and resulted in a loss of $4.1 million.

 

The results of the operations of Toreador’s assets in the United States, Turkey, Hungary and Romania for 2006 to 2009 have been presented as discontinued operations.

On May 10, 2010, Toreador Energy France S.C.S. (“TEF”), a company organized under the laws of France and an indirect subsidiary of Toreador, entered into an Investment Agreement (the “Investment Agreement”) with Hess Oil France S.A.S. (“Hess Oil”), a company organized under the laws of France and a wholly owned subsidiary of Hess, pursuant to which (x) Hess Oil became a 50% holder of TEF’s working interests in its awarded and pending exploration permits in the Paris Basin, France (the “Permits”) subject to fulfillment of Work Program (as described in (y) (2) hereafter) and (y) (1) Hess Oil made a $15 million upfront payment to TEF, (2) Hess Oil will have the right to invest up to $120 million in fulfillment of a two-phase work program (the “Work Program”) and (3) TEF is entitled to receive up to a maximum of $130 million of success fees based on reserves and upon the achievement of an oil production threshold, each as described more fully below.

 

Pursuant to the Investment Agreement, TEF has transferred 50% of its working interest in each Permit to Hess Oil (collectively, the “Transfer Working Interests”) and, on June 10, 2010, Hess Oil paid TEF $15 million plus VAT, i.e., an aggregate amount of $17.9 million (such payment having been recorded as other income for the year ended December 31, 2010 as this revenue is not subject to any further obligation or performance by Toreador nor is it dependent upon any approval).

 

Under the terms of the Investment Agreement, TEF is entitled to invoice Hess Oil for all personal general and administrative costs associated with its activities as operator of the Permits until such time as Hess Oil becomes the operator of the Permits. Such amounts are recorded as “Other operating income.”

 

 

The unaudited pro forma condensed combined financial information presented below has been derived from the ZaZa historical financial statements included in this proxy statement/prospectus and from the Toreador historical financial statements incorporated by reference into this proxy statement/prospectus. The pro forma adjustments give effect to the merger of Toreador with and into Thor Merger Sub (a wholly owned subsidiary of New ZaZa) and the direct or indirect contribution of limited liability company interests by the current ZaZa owners to New ZaZa. The unaudited pro forma condensed combined financial information should be read in conjunction with (1) “ZaZa Management’s Discussion & Analysis” and the historical financial statements of ZaZa and the notes thereto and Toreador Management’s Discussion & Analysis of Financial Condition and Result of Operations and the historical financial statements and notes of Toreador included in Toreador’s Forms 10-K/A for the year ended December 31, 2010 and the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 incorporated by reference into this proxy statement/prospectus and (2) the detailed unaudited pro forma combined financial statements and footnotes included herein. See “Pro Forma Financial Information” on page 108.

 

The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2011 has been prepared as though the merger occurred as of January 1, 2011 and the unaudited pro forma condensed combined statement of income for the year ended December 31, 2010 has been prepared as though the merger occurred as of January 1, 2010. The unaudited pro forma condensed combined balance sheet information at September 30, 2011 has been prepared as though the merger occurred on September 30, 2011. The pro forma adjustments are based on available information and assumptions that ZaZa and Toreador believe are reasonable; however, such adjustments are subject to change based on the finalization of the terms of the merger. In addition, such adjustments are estimates and are subject to change.

 

The unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to represent what the actual combined results of operations or the combined financial position of New ZaZa would have been had the transactions occurred on the dates assumed, nor are they necessarily indicative of future combined results of operations or combined financial position.

 

The transactions will be treated by New ZaZa as a reverse merger under the purchase method of accounting in accordance with generally accepted accounting principles in the United States (“GAAP”). For accounting purposes, ZaZa will be considered to be acquiring Toreador in this transaction. Under the purchase method of accounting, the assets and liabilities of Toreador will be recorded at their respective fair values and added to those of ZaZa.

 

All unaudited pro forma financial information contained in this proxy statement/prospectus has been prepared using the purchase method to account for the transactions. The final allocation of the purchase price will be determined after the merger is completed and after completion of an analysis to determine the assigned fair values of Toreador’s tangible and identifiable intangible assets and liabilities. In addition, estimates related to merger-related charges are subject to final decisions related to combining Toreador and ZaZa. Accordingly, the final purchase accounting adjustments may be materially different from the unaudited pro forma adjustments, which could have a material effect on the pro forma results of operations.

 

The actual amounts recorded as of the completion of the transactions may differ materially from the information presented in its unaudited pro forma condensed combined financial information as a result of several factors, including the following:

 

 

The unaudited pro forma condensed combined financial information does not reflect any cost savings or other synergies that the management of Toreador and ZaZa believe could have been achieved had the transactions been completed on the dates indicated and are not necessarily indicative of the financial position or results of operations presented as of the dates or for the periods indicated, or the results of operations or financial position that may be achieved in the future.

 

The unaudited pro forma condensed combined statements of income information do not include adjustments for all of the costs of operating as a combined company, including possible higher information technology, tax, accounting, treasury, investor relations, insurance and other expenses related to being a larger multinational company versus amounts historically reflected. Such possible increased costs are not included in the unaudited pro forma condensed combined financial information as such increases are subject to change.

 

The unaudited pro forma condensed consolidated financial information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement/prospectus.

 

Pro Forma Combined Income Statement Data

 

ZaZa Energy Corporation

(Unaudited)

 

 

Pro Forma Combined Balance Sheet Data

 

ZaZa Energy Corporation

(Unaudited)

 

 

The following table summarizes unaudited per share information for Toreador, unaudited equivalent per share information for ZaZa calculated by dividing the applicable historical financial results of ZaZa by 75,976,851, which is the number of new shares of New ZaZa expected to be issued in the transaction to the holders of the ZaZa limited liability company interests, unaudited per share information for New ZaZa on an unaudited pro forma combined basis and unaudited per share information for Toreador on an equivalent pro forma per share basis. This information is only a summary, and you should read it in conjunction with the historical financial statements of ZaZa and the related notes included in this proxy statement/prospectus and the historical consolidated financial statements of Toreador and the related notes that Toreador has previously filed with the SEC and which are incorporated in this proxy statement/prospectus by reference. See “Where You Can Find More Information” on page 170. The pro forma information is presented for informational purposes only and is not intended to represent or to be indicative of the actual operating results or financial position that would have resulted if the transaction had occurred at the beginning of the period presented, nor is it necessarily indicative of the future operating results or financial position of New ZaZa.

 

 

 

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

There is no established trading market for New ZaZa’s common stock. Toreador’s common stock is traded on the Nasdaq Global Market under the trading symbol “TRGL.” New ZaZa’s common stock will trade on the Nasdaq Capital Market under the symbol “ZAZA.” The following table sets forth the high and low sales prices of shares of Toreador common stock on the NASDAQ Global Market Toreador’s three most recent full fiscal years and any subsequent fiscal quarters.

 

 

In addition, Toreador’s common stock traded on the Professional Segment of NYSE Euronext Paris under the trading symbol “TOR” from December 17, 2010 until November 14, 2011, when, at Toreador’s election, the Toreador common stock ceased trading on the Professional Segment of NYSE Euronext Paris. We do not expect New ZaZa’s common stock to trade on the Professional Segment of NYSE Euronext Paris.

 

On August 9, 2011, the last trading day before the merger agreement was announced, the high and low sale prices of shares of Toreador common stock as reported on the NASDAQ Global Market were $3.16 and $2.62, respectively. On January 12, 2012, the last date before printing this proxy statement/prospectus for which it was practicable to obtain this information, the high and low sale prices of shares of Toreador common stock as reported on the NASDAQ Global Market were $4.80 and $4.39, respectively.

 

As of January 11, 2012, the last date prior to printing this proxy statement/prospectus for which it was practicable to obtain this information, there were approximately 358 registered holders of Toreador common stock.

 

Toreador stockholders are advised to obtain current market quotations for Toreador common stock. The market price of Toreador common stock will fluctuate between the date of this proxy statement/prospectus and the completion of the merger. No assurance can be given concerning the market price of Toreador common stock before or after the effective time of the merger.

 

New ZaZa is a newly formed corporation and has not paid dividends on its common stock. Toreador has not declared or paid cash dividends on its common stock since 2000. New ZaZa intends to retain earnings to finance the growth of its business. As a result, New ZaZa does not anticipate paying cash dividends on its common stock for the foreseeable future.