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ZAIS Group Holdings, Inc. – ‘PREM14A’ for 10/31/14

On:  Friday, 10/31/14, at 5:22pm ET   ·   For:  10/31/14   ·   Accession #:  1144204-14-64437   ·   File #:  1-35848

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/31/14  ZAIS Group Holdings, Inc.         PREM14A    10/31/14    1:6.9M                                   Toppan Vintage/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Solicitation Material - Merger    HTML   4.32M 
                          or Acquisition                                         

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Information Required in Proxy Statement

Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of The

Securities Exchange Act of 1934

Check the appropriate box:

HF2 FINANCIAL MANAGEMENT INC.

(Name of Registrant as Specified in Its Charter)

(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

HF2 FINANCIAL MANAGEMENT INC.

999 18th Street, Suite 3000

Denver, Colorado 80202

Dear HF2 FINANCIAL MANAGEMENT INC. Stockholders:

You are cordially invited to attend the special meeting in lieu of the 2014 annual meeting of stockholders of HF2 FINANCIAL MANAGEMENT INC., which we refer to as “we,” “us,” “our,” “HF2” or the “Company,” on [●], 2014, at 9:00 A.M., Eastern Time, at the offices of Bingham McCutchen LLP, 399 Park Avenue, New York, New York 10022.

At the special meeting, our stockholders will be asked to consider and vote upon a proposal, which we refer to as the “Business Combination Proposal,” to approve the Investment Agreement, dated as of September 16, 2014 (as amended, the “Investment Agreement”), by and among us, ZAIS Group Parent, LLC, a Delaware limited liability company (“ZGP”), and the members of ZGP (the “ZGP Founder Members”). ZGP is the sole member of ZAIS Group, LLC (“ZAIS”), an investment management firm focused on specialized credit investments with approximately $5 billion of assets under management as of June 30, 2014. A copy of the Investment Agreement is attached to the accompanying proxy statement as Annex A.

The Investment Agreement provides for the acquisition by us of a majority of the Class A Units of ZGP (“Class A Units”). The number of Class A Units we will acquire will be equal to the aggregate number of shares of Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), outstanding at the closing of the transactions contemplated by the Investment Agreement (the “Closing”) and after giving effect to any redemption of shares of Class A Common Stock by our public stockholders in connection with the consummation of this investment (“Redemption”). As of [●], 2014, there are 23,592,150 shares of Class A Common Stock outstanding. We refer to the transactions contemplated by the Investment Agreement as the “Business Combination” and the Class A Units that we will acquire as the “Acquired Units.”

Pursuant to the Investment Agreement, in exchange for the Acquired Units we will contribute to ZGP an amount in cash equal to the assets in the Company’s trust account maintained for the benefit of the Company’s public stockholders (the “Trust Account”), after giving effect to the Redemption and less our aggregate costs, fees and expenses incurred in connection with or pursuant to the consummation of the Business Combination (including deferred commissions payable to investment advisors) (the “Expense Payments”). This contribution amount will be funded through use of the funds in the Trust Account.

Immediately following consummation of the Business Combination, the ZGP Founder Members will hold 7,000,000 Class A Units, subject to adjustment in accordance with the Investment Agreement. It is also contemplated that, following the consummation of the Business Combination, ZGP will issue up to 1,600,000 Class B Units (“Class B Units”) to key ZAIS employees. Accordingly, following the consummation of the Business Combination, assuming none of our stockholders elect to redeem their shares of Class A Common Stock, it is contemplated that there will be 32,192,150 Units of ZGP outstanding and HF2 will own approximately 73.3% of the Units, the ZGP Founder Members will own approximately 21.7% of the Units and key employees will own the remaining 5.0%.

In addition, during the first five years after the Closing, ZGP will release up to an additional 2,800,000 Class A Units (the “Additional Founder Units”) to the ZGP Founder Members if the sum of the average per share closing, price over any 20 trading-day period of the Class A Common Stock plus cumulative dividends paid on the Class A Common Stock between the Closing and the day prior to such 20 trading-day period (the “Total Per Share Value”) meets or exceeds specified thresholds, ranging from $12.50 to $21.50. During the first five years after the Closing, ZGP may grant up to an additional 5,200,000 Class B Units (the “Additional Employee Units”) to ZAIS employees, subject to satisfaction of the same Total Per Share Value thresholds as for the Additional Founder Units. All Class B Units are subject to vesting, lock-ups and other restrictive provisions.

The ZGP Founder Members’ Class A Units and all of the vested Class B Units may be exchanged for shares of Class A Common Stock on a one-for-one basis (subject to certain adjustments to the exchange ratio) or, at our option, cash or a combination of Class A Common Stock and cash, pursuant to the Exchange Agreement that the Company will enter into with ZGP, the ZGP Founder Members and the other parties thereto, the form of which is attached to the accompanying proxy statement as Annex C. Generally, there is a two-year lock-up period before any exchanges of Class A Units or vested Class B Units are permitted.

At the Closing, all of the outstanding shares of Class B Common Stock, par value $0.000001, of the Company (the “Class B Common Stock”) will be transferred from the HF2 Class B Trust to the ZGP Founder Members and immediately deposited with a newly created irrevocable trust of which Mr. Christian Zugel, the founder, Chief Investment Officer and Managing Member of ZAIS, is the initial sole trustee. Each share of Class B Common Stock is entitled to 10 votes and there are currently 20,000,000 shares of Class B Common Stock outstanding.

In connection with the Investment Agreement, we also will enter into the following agreements, each of which is discussed in the accompanying proxy statement: (i) a Second Amended and Restated Limited Liability Company Agreement of ZGP, the form of which is attached to the accompanying proxy statement as Annex B, (ii) the Exchange Agreement, the form of which is attached to the accompanying proxy statement as Annex C, (iii) a Registration Rights Agreement providing registration rights for shares of Class A Common Stock issued upon conversion of Class A Units and vested Class B Units of ZGP, the form of which is attached to the accompanying proxy statement as Annex D, and (iv) a Tax Receivable Agreement relating to the payment of a portion of specified tax savings to the ZGP Founder Members, the form of which is attached to the accompanying proxy statement as Annex E.

At the special meeting, our stockholders also will be asked to consider and vote upon the following proposals: (i) to approve our second amended and restated certificate of incorporation (the form of which is attached to the accompanying proxy statement as Annex G), including to change our name to “ZAIS Group Holdings, Inc.”, eliminate our staggered board of directors and provide that all directors will have one year terms, allow for stockholder action by written consent, and provide a Delaware forum selection clause, which we refer to as the “Amended and Restated Charter Proposal,” (ii) to elect five directors, effective upon the Closing, to serve on our board of directors until the 2015 annual meeting of stockholders and until their respective successors are duly elected and qualified, which we refer to as the “Director Election Proposal,” (iii) to approve and adopt the ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan (an equity-based incentive plan), the form of which is attached to the accompanying proxy statement as Annex F, which we refer to as the “2014 Stock Plan Proposal,” and (iv) to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented to the stockholders for vote at the special meeting, which we refer to as the “Adjournment Proposal.” Each of these proposals is more fully described in the accompanying proxy statement, which each stockholder is encouraged to review carefully.

Pursuant to our amended and restated certificate of incorporation, we are providing our public stockholders with the opportunity to redeem, upon the consummation of the transactions contemplated by the Investment Agreement, shares of Class A Common Stock then held by them for an amount of cash per share equal to the quotient determined by dividing (i) the amount in the Trust Account, net of any interest thereon and net of any income, franchise or other taxes payable by (ii) the total number of shares of Class A Common Stock issued in our initial public offering (“IPO”) that remain outstanding, calculated as of the date of the consummation of the Business Combination (the “Redemption Price”). For illustrative purposes, based on funds in the Trust Account of approximately $[●] on [●], 2014, the estimated per share Redemption Price at such date would have been approximately $10.50. To exercise Redemption rights, a stockholder must make a demand for Redemption at least two business days prior to the date of the special meeting and vote on the Business Combination Proposal. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) will be restricted from seeking Redemption with respect to 20% or more of the shares of Class A Common Stock sold in our IPO; provided, however, that a public stockholder is still entitled to vote against the Business Combination Proposal with respect to all shares of Class A Common Stock sold in our IPO owned by him or his affiliates. We will require any public stockholder electing to redeem his IPO shares, whether he is a record holder or holds his IPO shares in “street name”, to make certifications that he is not part of such a group and to either tender his certificate to our transfer agent or to deliver his shares to our transfer agent electronically, using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at his option at least two business days prior to the special meeting. If the Business Combination Proposal is not approved or the Business Combination is not consummated for any reason, then the public stockholders who elected to exercise their Redemption rights will not be entitled to redeem their IPO shares, and we will promptly return any IPO shares delivered to us by the public stockholders.

Unless waived by ZGP and the ZGP Founder Members, it is a condition to Closing under the Investment Agreement that the amount in the Trust Account to be contributed in exchange for the Acquired Units, along with any proceeds from sales of equity of ZGP or other cash available to HF2, will be at least $100 million. Each Redemption of shares of Class A Common Stock by our public stockholders will decrease the amount in the Trust Account. If Redemptions by our public stockholders cause us to have less than $100 million in the Trust Account, along with any proceeds from sales of equity of ZGP or other cash available to HF2, after giving effect to Redemptions and the Expense Payments, ZGP and the ZGP Founder Members will not be required to consummate the Business Combination.

The holders of our shares of Class A Common Stock issued in private placements consummated prior to our IPO (which we refer to as “Founders’ Shares”) or issued in private placements at the time of our IPO (which we refer to as “Sponsors’ Shares”), who we refer to as our “Sponsors,” and our officers and directors have agreed (i) to vote any of their Founders’ Shares, Sponsors’ Shares and any public shares purchased in or after our IPO in favor of the Business Combination Proposal and (ii) not to redeem any Founders’ Shares or Sponsors’ Shares in connection with the vote to approve the Business Combination Proposal. The Founders’ Shares and the Sponsors’ Shares will be excluded from the calculation used to determine the Redemption Price. Currently, our Sponsors, officers and directors own approximately 29.2% of our issued and outstanding shares of Class A Common Stock, including all of the Founders’ Shares and Sponsors’ Shares.

We are providing the accompanying proxy statement and accompanying proxy card to our stockholders in connection with the solicitation of proxies to be voted at the special meeting and at any adjournments or postponements of the special meeting. Whether or not you plan to attend the special meeting, we urge you to read the proxy statement (and any documents incorporated into the proxy statement by reference) carefully. Please pay particular attention to the section entitled “Risk Factors.”

After careful consideration, our board of directors has unanimously approved and adopted the Investment Agreement and unanimously recommends that our stockholders vote FOR adoption and approval of the Investment Agreement and Business Combination and FOR all other proposals presented to our stockholders in the accompanying proxy statement. When you consider the board recommendation of these proposals, you should keep in mind that our directors and officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “Proposal No. 1—Approval of the Business Combination—Certain Benefits of HF2’s Directors and Officers and Others in the Business Combination.”

Approval of the Business Combination Proposal requires the affirmative vote of a majority of the outstanding shares of Class A Common Stock voted on the proposal. Shares of Class B Common Stock will be voted in proportion to the vote of the shares of Class A Common Stock on the Business Combination Proposal and each of the other proposals. The 2014 Stock Plan Proposal and Adjournment Proposal require the affirmative vote of holders of a majority of the shares of Class A Common Stock and Class B Common Stock, voting together as a single class, represented in person or by proxy and entitled to vote thereon at the special meeting. Approval of the Amended and Restated Charter Proposal requires the affirmative vote of holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, voting as separate classes. Approval of the Director Election Proposal requires the affirmative vote of the holders of a plurality of the shares of Class A Common Stock and Class B Common Stock, voting together as a single class, represented in person or by proxy and entitled to vote thereon at the special meeting. Our board of directors and members of ZGP have already approved the Business Combination.

Your vote is very important. If you are a registered stockholder, please vote your shares as soon as possible using one of the following methods to ensure that your vote is counted, regardless of whether you expect to attend the special meeting in person: (1) call the toll-free number specified on the enclosed proxy card and follow the instructions when prompted, (2) access the Internet website specified on the enclosed proxy card and follow the instructions provided to you, or (3) complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the special meeting. A failure to vote your shares is the equivalent of a vote against the Amended and Restated Charter Proposal but, assuming a quorum is otherwise validly established, will have no effect on the other proposals to be considered at the special meeting of stockholders. Unless waived by the parties to the Investment Agreement, the Closing of the Business Combination is conditioned upon the adoption and approval of the Business Combination Proposal and the Amended and Restated Charter Proposal.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted FOR each of the proposals presented at the special meeting.

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST AFFIRMATIVELY VOTE EITHER FOR OR AGAINST THE BUSINESS COMBINATION PROPOSAL AND DEMAND THAT WE REDEEM YOUR SHARES OF CLASS A COMMON STOCK FOR THE REDEMPTION PRICE, MAKE CERTIFICATIONS THAT YOU ARE NOT PART OF A GROUP AND TENDER YOUR SHARES TO OUR TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE DATE OF THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH AND WILL BE RETURNED TO YOU. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

On behalf of our board of directors, I thank you for your support and look forward to the successful completion of the Business Combination.

This proxy statement is dated [●], 2014, and is first being mailed to stockholders of the Company on or about [●], 2014.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

HF2 FINANCIAL MANAGEMENT INC.

999 18th Street, Suite 3000

Denver, Colorado 80202

NOTICE OF SPECIAL MEETING IN LIEU OF 2014 ANNUAL MEETING

OF STOCKHOLDERS OF HF2 FINANCIAL MANAGEMENT INC.

To Be Held on [●], 2014

To the Stockholders of HF2 FINANCIAL MANAGEMENT INC.:

NOTICE IS HEREBY GIVEN that a special meeting in lieu of the 2014 annual meeting of stockholders (the “special meeting”) of HF2 FINANCIAL MANAGEMENT INC., a Delaware corporation (“we,” “us,” “our,” “HF2” or the “Company”), will be held on [●], 2014, at 9:00 A.M., Eastern Time, at the offices of Bingham McCutchen LLP, 399 Park Avenue, New York, New York 10022. You are cordially invited to attend the special meeting for the following purposes:

(1) The Business Combination Proposal—to consider and vote upon a proposal to approve and adopt the Investment Agreement, dated as of September 16, 2014 (as amended, the “Investment Agreement”), by and among the Company, ZAIS Group Parent, LLC, a Delaware limited liability company (“ZGP”), and the members of ZGP (the “ZGP Founder Members”), and the transactions contemplated thereby;

(2) The Amended and Restated Charter Proposal—to approve the Company’s second amended and restated certificate of incorporation, which includes amendments to change the Company’s name to “ZAIS Group Holdings, Inc.”, eliminate the Company’s staggered board of directors and provide that all directors will have one year terms, allow for stockholder action by written consent, and provide a Delaware forum selection clause for shareholder action;

(3) The Director Election Proposal—to consider and vote upon a proposal to elect five directors, effective upon the closing of the Business Combination, to serve as directors on our board of directors until the 2015 annual meeting of stockholders and until their respective successors are duly elected and qualified;

(4) The 2014 Stock Plan Proposal—to consider and vote upon a proposal to approve and adopt the ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan;

(5) The Adjournment Proposal—to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented to the stockholders for vote at the special meeting; and

(6) to consider and transact such other matters as may properly come before the special meeting or any adjournment or postponement thereof.

Only holders of record of our common stock at the close of business on [●], 2014 are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements of the special meeting. A complete list of our stockholders of record entitled to vote at the special meeting will be available for ten days before the special meeting at our principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.

The Amended and Restated Charter Proposal is conditioned on the approval of the Business Combination Proposal. Each of the Director Election Proposal and the 2014 Stock Plan Proposal is conditioned on the approval of both the Business Combination Proposal and, unless waived by ZGP and the ZGP Founder Members, the Amended and Restated Charter Proposal. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth on this proxy statement.

Your attention is directed to the proxy statement accompanying this notice (including the annexes thereto) for a more complete description of the Investment Agreement and the transactions contemplated thereby and each of our proposals. We encourage you to read this proxy statement carefully. If you have any questions or need assistance voting your shares, please call R. Bradley Forth, Chief Financial Officer and Secretary, at (303) 498-9737.

TABLE OF CONTENTS

SUMMARY OF THE PROXY STATEMENT

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the Business Combination and the proposals to be considered at the special meeting, you should read this entire proxy statement carefully, including the annexes. See also the section entitled “Where You Can Find More Information.” References to “we,” “us,” “our,” “HF2” or the “Company” are to HF2 Financial Management Inc. In addition, for definitions of terms commonly used throughout this proxy statement, including this Summary of the Proxy Statement, see the section entitled “Frequently Used Terms.”

Business Combination

Parties to the Business Combination

HF2 Financial Management Inc.

HF2 is a blank check company in the development stage, formed in October 2012, whose objective is to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, one or more businesses or entities. There currently are 23,592,150 shares of Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), and 20,000,000 shares of Class B Common Stock, par value $0.000001 per share (“Class B Common Stock”) issued and outstanding. Of the shares of Class A Common Stock issued and outstanding, 17,595,000 shares were sold as part of our initial public offering (“IPO”), 4,398,750 shares (which we refer to as “Founders’ Shares”) were issued to holders of Class A Common Stock prior to our IPO (who we refer to as “Sponsors”) and 1,598,400 shares (which we refer to as “Sponsors’ Shares”) were sold to our Sponsors in private placements simultaneously with the consummation of our IPO and the closing of the sale of shares to the underwriters in our IPO pursuant to the exercise of the underwriters’ over-allotment option. Class A Common Stock is traded on The NASDAQ Stock Market under the ticker symbol “HTWO.” HF2 will apply to continue the listing of its Class A Common Stock on The NASDAQ Stock Market under the symbol “ZAIS” upon the consummation of the Business Combination.

The mailing address and telephone number of HF2’s principal executive office is 999 18th Street, Suite 3000, Denver, Colorado 80202, (303) 498 – 9737. For more information about us and our securities, see the sections entitled “Information About HF2” and “HF2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ZAIS Group Parent, LLC

ZAIS Group Parent, LLC, which we refer to in this proxy statement as “ZGP,” is the sole member of ZAIS Group, LLC. The mailing address and telephone number of ZGP’s principal executive office is Two Bridge Avenue, Suite 322, Red Bank, New Jersey 07701, (732) 530-3610.

ZAIS Group, LLC, which we refer to in the proxy statement as “ZAIS,” is an investment management firm focused on specialized credit investments with approximately $5 billion of assets under management as of June 30, 2014. The mailing address and telephone number of ZAIS’s principal executive office is the same as set forth above for ZGP.

For more information about ZGP and ZAIS, see the sections entitled “Information About ZGP and ZAIS,” “ZGP Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Management After the Business Combination.”

The ZGP Founder Members

The current members of ZGP, who we refer to as “ZGP Founder Members” are Christian Zugel, Sonia Zugel, Laureen Lim, and certain trusts, the beneficiaries of which are immediate family members of Christian Zugel.

Summary Term Sheet

Pursuant to the Investment Agreement, dated as of September 16, 2014 (as amended, the “Investment Agreement”), by and among us, ZGP, and the ZGP Founder Members, we propose to acquire a number of Class A Units of ZGP (“Class A Units”) equal to the aggregate number of shares of Class A Common Stock outstanding at the closing of the transactions contemplated by the Investment Agreement (the “Closing”) and after giving effect to any redemption of shares of Class A Common Stock by our public stockholders in connection with the consummation of this investment (each a “Redemption”). We refer to the Class A Units that we will acquire as the “Acquired Units.” The ZGP Founder Members will hold 7,000,000 Class A Units immediately following the consummation of the Business Combination subject to adjustment in accordance with the Investment Agreement. For more information about the transactions contemplated by the Investment Agreement, which is referred to herein as the “Business Combination,” see the section entitled “Proposal No. 1—Approval of the Business Combination” and the copy of the Investment Agreement attached to this proxy statement as Annex A.

Pursuant to the Investment Agreement, the contribution amount for the Acquired Units is an amount in cash equal to the assets in the trust account maintained for the benefit of our public stockholders (the “Trust Account”), after giving effect to Redemptions and less our aggregate costs, fees and expenses incurred in connection with or pursuant to the consummation of the Business Combination (including deferred commissions) (the “Expense Payments” and the consideration to be paid to ZGP, the “Closing Acquisition Consideration”). The Closing Acquisition Consideration will be funded with the funds in the Trust Account.

Immediately following consummation of the Business Combination, the ZGP Founder Members will hold 7,000,000 Class A Units, subject to adjustment in accordance with the Investment Agreement. It is also contemplated that, following the consummation of the Business Combination, ZGP will issue up to 1,600,000 Class B Units (“Class B Units,” and together with the Class A Units, the “Units”) to key ZAIS employees. Accordingly, following the consummation of the Business Combination, assuming none of our stockholders elect to redeem their shares of Class A Common Stock, it is contemplated that there will be 32,192,150 Units outstanding and HF2 will own approximately 73.3% of those Units, the ZGP Founder Members will own approximately 21.7% of those Units and key employees will own the remaining 5%. It is anticipated that, upon completion of the Business Combination, our public stockholders will retain an ownership interest of 70.8% in us and our Sponsors will retain an ownership interest of approximately 29.2% in us. If any of our public stockholders exercise their Redemption rights, then (i) the ownership interest in us of our public stockholders will decrease and the ownership interest in us of our Sponsors will increase and (ii) our ownership interest in ZGP will decrease and the ownership interest of the ZGP Founder Members and ZAIS employees in ZGP will increase. The ownership percentages with respect to us and ZGP following the Business Combination do not take into account (i) the release of any Additional Founder Units or the issuance of Additional Employee Units (each as described below), which would represent approximately 19.9% of the Units after giving effect to such release and issuance, or (ii) Closing related adjustments to the number of Class A Units retained by the ZGP Founder Members. If the actual facts are different than these assumptions (which they are likely to be), the percentage ownership of our existing stockholders in us will be different and our percentage ownership in ZGP will be different. See “Summary of the Proxy Statement—Impact of the Business Combination on HF2’s Public Float” and “Unaudited Pro Forma Condensed Combined Financial Information” for further information.

During the first five years after the Closing, ZGP will release up to an additional 2,800,000 Class A Units (the “Additional Founder Units”) to the ZGP Founder Members if the sum of the average per share closing price over any 20 trading-day period of the Class A Common Stock plus cumulative dividends paid on the Class A Common Stock between the Closing and the day prior to such 20 trading-day period (the “Total Per Share Value”) meets or exceeds specified thresholds, ranging from $12.50 to $21.50. During the first five years after the Closing, ZGP may grant up to an additional 5,200,000 Class B Units (the “Additional Employee Units”) to ZAIS employees, subject to satisfaction of the same Total Per Share Value thresholds as for the Additional Founder Units. All Class B Units are subject to vesting, lock-ups and other restrictive provisions.

The ZGP Founder Members’ Class A Units and vested Class B Units may be exchanged for shares of Class A Common Stock on a one-for-one basis (subject to certain adjustments to the exchange ratio) or, at our option, cash or a combination of Class A Common Stock and cash, pursuant to an Exchange Agreement that we will enter into with ZGP, the ZGP Founder Members and the other parties thereto. Generally, there is a two-year lock-up period before any exchanges of Class A Units or vested Class B Units are permitted. For more information about the Exchange Agreement, see the section entitled “Proposal No. 1—Approval of the Business Combination—Related Agreements—Exchange Agreement” and the form of the Exchange Agreement attached to this proxy statement as Annex C.

In addition, at the Closing, all of the outstanding shares of Class B Common Stock will be transferred from the HF2 Class B Trust to the ZGP Founder Members and immediately deposited with to a newly created irrevocable trust of which Mr. Christian Zugel, the founder, Chief Investment Officer and Managing Member of ZAIS, is the sole trustee (the “ZGH Class B Trust”). Mr. Zugel will be the Chief Investment Officer and Chairman of the Board of Directors of the Combined Company. For more information about the ZGH Class B Trust, see the section entitled “Proposal No. 1—Approval of the Business Combination—Related Agreements—The ZGH Class B Trust Agreement.”

In connection with the Investment Agreement, we will also enter into the following agreements, each of which is discussed in this proxy statement: (i) a Second Amended and Restated Limited Liability Company Agreement of ZGP, which is attached to this proxy statement as Annex B, (ii) an Exchange Agreement relating to the exchange of Class A Units and vested Class B Units into shares of Class A Common Stock, the form of which is attached to this proxy statement as Annex C, (iii) a Registration Rights Agreement for shares of Class A Common Stock issued upon exchange of Units, the form of which is attached to this proxy statement as Annex D, and (iv) a Tax Receivable Agreement relating to the payment of a portion of specified tax savings to the ZGP Founder Members, the form of which is attached to this proxy statement as Annex E. For more information about each of these agreements, see the section entitled “Proposal No. 1—Approval of the Business Combination—Related Agreements.”

Our management and board of directors considered various factors in determining (i) whether to approve the Investment Agreement and the transactions contemplated thereby and (ii) that the fair market value of the portion of ZGP that we will acquire was equal to at least 80% of the balance of the funds in the Trust Account at the time of the execution of the Investment Agreement. For more information about our decision-making process, see the section entitled “Proposal No. 1—Approval of the Business Combination—HF2’s Board of Directors’ Reasons for the Approval of the Business Combination.”

Unless waived by ZGP and the ZGP Founder Members, it is a condition to the Closing of the Business Combination under the Investment Agreement that the amount in the Trust Account to be contributed in exchange for the Acquired Units plus other cash available to us, along with any proceeds from issuances of equity interests by ZGP will be at least $100 million. Each Redemption of shares of Class A Common Stock by our public stockholders will decrease the amount in the Trust Account. If Redemptions by our public stockholders cause the amount of cash in the Trust Account, after giving effect to the Redemptions and the Expense Payments, when aggregated with other cash available to HF2 and proceeds from issuances of equity by ZGP to be less than $100 million, then ZGP and the ZGP Founder Members will not be required to consummate the Business Combination. The consummation of the Business Combination is also subject to a number of other conditions set forth in the Investment Agreement including, among others, the receipt of the requisite stockholder approval for the Business Combination Proposal contemplated by this proxy statement and, effectively, approval of the Amended and Restated Charter Proposal. For more information about the closing conditions to the Business Combination, see the sections entitled “Proposal No. 1—Approval of the Business Combination—The Investment Agreement—Conditions to the Closing of the Business Combination” and “Proposal No. 1—Approval of the Business Combination—Regulatory Matters.”

The Investment Agreement may be terminated at any time prior to the consummation of the Business Combination upon agreement of us and ZGP, or by us or ZGP acting alone, in specified circumstances, including if the Business Combination is not consummated on or before March 21, 2015 or if the Business Combination Proposal is not approved. For more information about the termination rights under the Investment Agreement, see the section entitled “Proposal No. 1—Approval of the Business Combination—The Investment Agreement—Termination.”

Organizational Structure

The following diagram illustrates our anticipated corporate structure following the Business Combination. Ownership percentages set forth below assume that none of our stockholders exercise their Redemption rights.

Impact of the Business Combination on HF2’s Public Float

It is anticipated that, immediately following the consummation of the Business Combination, the ownership of HF2 will be as follows, assuming (i) that none of our public stockholders exercise their Redemption rights and (ii) that 7,142,857 of our outstanding shares of Class A Common Stock are redeemed (which is the maximum number of shares of Class A Common Stock that may be redeemed in order for us to satisfy the condition to Closing that we must have at least $100 million of cash in the Trust Account):

Unless waived by ZGP and the ZGP Founder Members, it is a condition to the Closing under the Investment Agreement that the amount of funds in the Trust Account, after giving effect to Redemptions and the Expense Payments, when aggregated with any proceeds from issuances of equity interests by ZGP and other cash available to HF2 be at least $100 million. To the extent that holders of Class A Common Stock exercise their rights to redeem shares of Class A Common Stock or all or a portion of the Additional Founder Units are released or Additional Employee Units are issued, the ownership percentage of HF2 in ZGP will decrease as shown below:

The ownership percentages in the above two tables do not take into account Closing related adjustments to the number of Class A Units to be retained by the ZGP Founder Members and assume no equity awards have been granted under the 2014 Stock Plan. If the actual facts are different than these assumptions (which they are likely to be), the percentage ownerships in us and ZGP will be different.

Reasons for the Business Combination

We are a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. Our efforts to identify an initial business combination have not been limited to a particular industry or geographic region, although we have focused on companies operating in the financial services industry.

In particular, our board of directors considered the following positive factors, although not weighted or in any order of significance:

Significant Experience. ZAIS has been an active investor in structured credit since 1997. Members of ZAIS’s senior team, including those employees on ZAIS’s investment committee and management advisory committee, have, on average, more than 20 years of industry experience, covering investment management, fixed income trading, research, investment banking and financial services.

Distinguished Investment Track Record Across Multiple Market Cycles. ZAIS has an established track record of delivering attractive relative returns through multiple market cycles. With a disciplined approach to credit investing coupled with robust risk mitigation, ZAIS is proficient at evaluating every level of the capital structure, in both mortgage and corporate credit assets and related derivative securities.

Proprietary Analytics Platform Enhances Competitive Position. ZAIS has developed a proprietary analytics platform over the past 17 years, integrating loan-level data and analytics across the credit investing spectrum. ZAIS’s analytics allow it to compare investments under various assumptions, such as different macroeconomic conditions, credit spread and market volatility observations, and default and recovery rates. Utilizing a common analytics platform for both securities and loans enables ZAIS to make relative value allocations across sectors.

Company with Strong Free Cash Flow Generation. ZAIS’s revenue is derived principally from two sources: (1) management fee income, based on the size of ZAIS’s funds and (2) incentive income, based on the performance of ZAIS’s funds. Thus, revenues vary directly with increases or decreases in the aggregate size and the investment performance of ZAIS’s funds. ZAIS incurs annual operating expenses for employee compensation, occupancy and other normal operating expenses that, except for incentive compensation for key employees, do not vary significantly with changes in the aggregate size and the investment performance of ZAIS’s funds. Our board of directors believes this operating structure provides operating leverage to ZAIS, because if ZAIS increases the total size of its funds and continues to deliver attractive investment performance results, ZAIS will likely not experience corresponding increases in its fixed operating costs.

Attractive Growth Opportunities. ZAIS is currently developing four specific growth initiatives designed to capture current market opportunities and accelerate the growth of ZAIS’s credit investment platform. With the proceeds from the Business Combination, ZAIS expects to: (i) expand its corporate collateralized loan obligation (“CLO”) business, which has priced and closed two CLO securitizations year to date in 2014; (ii) scale its residential mortgage conduit business that already has four approved originators; (iii) seed a credit trading fund focused on the emerging credit trading opportunities arising from ongoing regulatory changes; and (iv) build a commercial real estate CLO business to originate, or purchase, newly originated bridge loans and securitize them into new commercial real estate (“CRE”) CLO securities or commercial mortgage-backed securities (“CMBS”).

Institutionalized Operations Infrastructure. ZAIS has developed an operational platform with expertise and capacity in areas such as finance and accounting, administration, compliance, investor relations, trade execution, securities valuation, risk management and information technology.

Alignment of Interests. The ZGP Founder Members will not receive any of the proceeds contributed to ZGP in the Business Combination, and will retain their equity interest in ZGP. Furthermore, in the first five years following the completion of the Business Combination, the ZGP Founder Members and ZAIS employees will have the opportunity to receive the Additional Founder Units and Additional Employee Units, subject to Total Per Share Value meeting certain targets.

Closing Acquisition Consideration and Terms. Our board of directors determined, based on the financial skills and background and experience of our directors, that the Closing Acquisition Consideration and terms of the Investment Agreement are fair to and in the best interest of HF2 and its stockholders. In addition, our board of directors received an opinion from Cassel Salpeter & Co., LLC, or Cassel Salpeter as described in “—Opinion of Cassel Salpeter to HF2’s Board of Directors.”

For additional information regarding our board of directors’ consideration of the Business Combination, see the sections entitled “Proposal No. 1—Approval of the Business Combination—HF2’s Board of Directors’ Reasons for the Approval of the Business Combination” and “Proposal No. 1—Approval of the Business Combination—Background of the Business Combination.”

Opinion of Cassel Salpeter to HF2’s Board of Directors

Cassel Salpeter, an investment banking firm, rendered its oral opinion to our board of directors on September 13, 2014 (which was subsequently confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date), as of September 13, 2014 and subject to and based upon the procedures, assumptions, qualifications and limitations set forth in its written opinion, as to (i) the fairness, from a financial point of view, to us of the Closing Acquisition Consideration to be paid by us for the Acquired Units in the Business Combination and (ii) whether, based upon the transaction, our expected ownership interest in ZGP at Closing has a fair market value equal to at least 80% of the balance in the Trust Account. See “Proposal No. 1—Approval of the Business Combination — Description of Opinion of Cassel Salpeter.

The opinion was provided for the use and benefit of the members of our board of directors (in their capacity as such) in connection with our board of director’s evaluation of the Business Combination and only addressed, as of the date of the opinion, (i) the fairness, from a financial point of view, to us of the Closing Acquisition Consideration to be contributed by us for the Acquired Units in the Business Combination and (ii) whether, based upon the transaction, our expected ownership interest in ZGP at Closing has a fair market value equal to at least 80% of the balance in the Trust Account. The opinion did not address any other aspect or implication of the Business Combination or the Investment Agreement. The summary of Cassel Salpeter’s opinion in this proxy statement is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex H to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, or constitute, advice or a recommendation to our board of directors, any stockholder or any other security holder as to how such person should vote or act with respect to any matter relating to the Business Combination or otherwise. The financial and other terms of the Business Combination were determined pursuant to negotiations between the parties to the Investment Agreement and were not determined by or pursuant to any recommendation of Cassel Salpeter.

Redemption Rights

Pursuant to our amended and restated certificate of incorporation, we are providing our public stockholders with the opportunity to redeem, upon the consummation of the transactions contemplated by the Investment Agreement, shares of Class A Common Stock then held by them for an amount of cash per share equal to the quotient determined by dividing (i) the amount in the Trust Account, net of any interest thereon and net of any income, franchise or other taxes payable by (ii) the total number of shares of Class A Common Stock issued in our IPO that remain outstanding, calculated as of the date of the consummation of the Business Combination (the “Redemption Price”). For illustrative purposes, based on funds in the Trust Account of approximately $[●] on [●], 2014, the estimated per share Redemption Price at such date would have been approximately $10.50. To exercise Redemption rights, a stockholder must make a demand for redemption at least two business days prior to the date of the special meeting and vote on the Business Combination Proposal. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking Redemption rights with respect to 20% or more of the shares of Class A Common Stock sold in our IPO; provided, however, that a public stockholder is still entitled to vote against the Business Combination Proposal with respect to all shares of Class A Common Stock sold in our IPO owned by him or his affiliates. We will require any public stockholder electing to redeem his IPO shares, whether he is a record holder or holds his IPO shares in “street name”, to make certifications that he is not part of such a group and to either tender his certificate to our transfer agent or to deliver his shares to our transfer agent electronically, using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at his option at least two business days prior to the date of the special meeting.

For additional information regarding your redemption rights, see the section entitled “Special Meeting in Lieu of 2014 Annual Meeting of HF2 Stockholders—Redemption Rights.”

Accounting Treatment

The Business Combination will be accounted for as a reorganization and recapitalization in accordance with GAAP for accounting and financial reporting purposes. The accounting for the reorganization and recapitalization follows the rules for a reverse acquisition as enumerated in the Accounting Standards Codification, Section 805. For additional information on the accounting treatment for the Business Combination, see “Proposal No. 1—Approval of the Business Combination—Anticipated Accounting Treatment.”

Appraisal Rights

Appraisal rights are not available to our stockholders in connection with the Business Combination.

Board of Directors of HF2 Following the Business Combination

Upon the closing of the Business Combination, we anticipate that the size of our board of directors will remain at five members, all of whom will be voted upon by our stockholders at the special meeting. If all director nominees are elected, Proposal No. 2 is approved, and the Business Combination is consummated, our board of directors will consist of Christian Zugel, Michael F. Szymanski, Bruce Cameron, Paul B. Guenther and James Zinn, with each of these nominees serving a one-year term expiring at our 2015 annual meeting of stockholders. See the sections entitled “Proposal No. 3—Election of Directors to the Board” and “Management After the Business Combination” for additional information.

Approval and Adoption of Other Proposals

In addition to voting on the proposal to approve and adopt the Investment Agreement and the Business Combination at the special meeting, the stockholders of HF2 will be asked to vote on the following proposals:

Proposal No. 2 - To approve our second amended and restated certificate of incorporation, the form of which is attached to this proxy statement as Annex G, including to change our name from “HF2 Financial Management Inc.” to “ZAIS Group Holdings, Inc.”, eliminate our staggered board of directors and provide that all directors will have one year terms, allow for stockholder action by written consent and provide a Delaware forum selection clause for shareholder actions, which we refer to as the “Amended and Restated Charter Proposal,”

Proposal No. 3 - To elect five directors to serve on our board of directors until the 2015 annual meeting of stockholders and until their respective successors are duly elected and qualified, which we refer to as the “Director Election Proposal,”

Proposal No. 4 - To approve and adopt the ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan (an equity-based incentive plan), the form of which is attached to this proxy statement as Annex F, which we refer to as the “2014 Stock Plan Proposal,”

Proposal No. 5 - To adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented for stockholder vote at the special meeting, which we refer to as the “Adjournment Proposal.”

See the sections entitled “Proposal No. 2—Approval of Second Amended and Restated Certificate of Incorporation,” “Proposal No. 3—Election of Directors to the Board,” “Proposal No. 4—Approval and Adoption of the ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan,” and “Proposal No. 5—The Adjournment Proposal” and “Special Meeting in Lieu of 2014 Annual Meeting of HF2 Stockholders.”

Quorum and Required Vote for Proposals for the Special Meeting

A quorum of HF2 stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting if a majority of the shares of common stock outstanding and entitled to vote at the special meeting are represented in person or by proxy. With respect to the Amended and Restated Charter Proposal, holders of a majority of the issued and outstanding shares of each class of our common stock, present in person or represented by proxy, shall constitute a quorum. Abstentions will count as present for the purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum.

Approval of the Business Combination Proposal requires the affirmative vote of a majority of the outstanding shares of Class A Common Stock voted on the proposal. Shares of Class B Common Stock will be voted in proportion to the vote of the shares of Class A Common Stock. A failure to vote your shares, an abstention and a broker non-vote will, assuming a valid quorum is established, have no effect on the outcome of the vote on the Business Combination Proposal.

The 2014 Stock Plan Proposal and Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of Class A Common Stock and Class B Common Stock, voting together as a single class, represented in person or by proxy and entitled to vote thereon at the special meeting. A failure to vote your shares and a broker non-vote will, assuming a valid quorum is established, have no effect on the outcome of the vote on these proposals, but an abstention will have the same effect as a vote “against” each of these proposals.

Approval of the Amended and Restated Charter Proposal requires the affirmative vote of holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, voting as separate classes. A failure to vote your shares, a failure to vote, a broker non-vote, and abstentions are equivalent to a vote “against” the Amended and Restated Charter Proposal.

Directors are elected by a plurality of all of the votes cast by holders of shares of Class A Common Stock and Class B Common Stock represented in person or by proxy and entitled to vote thereon at the special meeting. This means that the five nominees will be elected if they receive more affirmative votes than any other nominee for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Assuming a valid quorum is established, failures to vote, broker non-votes and abstentions will have no effect on the election of directors.

The Amended and Restated Charter Proposal is conditioned on the approval of the Business Combination Proposal. Each of the Director Election Proposal and the 2014 Stock Plan Proposal is conditioned on the approval of both the Business Combination Proposal and, unless waived by ZGP and the ZGP Founder Members, the Amended and Restated Charter Proposal. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth on this proxy statement. It is important for you to note that in the event the Business Combination Proposal does not receive the requisite vote for approval, then we will not consummate the Business Combination. In addition, because the amendment and restatement of our charter is a condition to ZGP’s and the ZGP Founder Member’s obligations to consummate the Business Combination, unless waived by them, if the Amended and Restated Charter Proposal does not receive the requisite vote for approval, we cannot consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by March 21, 2015, we will be required to dissolve and liquidate the Trust Account by returning the then remaining funds in the Trust Account to the holders of our public shares.

The HF2 Class B Trust, as the holder of the 20,000,000 shares of Class B Common Stock, is entitled to ten votes at the special meeting for each share of Class B Common Stock held of record as of [●], 2014. The shares of Class B Common Stock will be voted in proportion to the vote of our shares of Class A Common Stock on each proposal and, therefore, will not have an effect on the vote on any of the proposals.

In connection with our IPO, we entered into agreements with each of our Sponsors, directors and officers, pursuant to which each agreed (i) to vote any Founders’ Shares, Sponsors’ Shares and any public shares purchased in or after the IPO in favor of the Business Combination Proposal and (ii) not to redeem any Founders’ Shares or Sponsors’ Shares in connection with the vote to approve the Business Combination Proposal. In addition, our officers, directors and Sponsors (other than Bulldog Investors and White Sand Investor Group, LP) have agreed not to redeem any public shares purchased in or after our IPO in connection with the vote to approve the Business Combination Proposal. Currently, our Sponsors, directors and officers own approximately 29.2% of our issued and outstanding shares of Class A Common Stock, including all of the Founders’ Shares and Sponsors’ Shares.

Recommendation to HF2 Stockholders

Our board of directors has unanimously approved and adopted the Investment Agreement and unanimously recommends that our stockholders vote FOR adoption and approval of the Investment Agreement and the Business Combination and FOR all other proposals presented to our stockholders in this proxy statement.

When you consider the recommendation of our board of directors in favor of approval of these proposals, you should keep in mind that our directors and officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. These interests include, among other things:

Risk Factors

In evaluating the proposals set forth in this proxy statement, you should carefully read this proxy statement, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.”

FREQUENTLY USED TERMS

Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “HF2” refer to HF2 Financial Management Inc., and the terms “combined company” and “post-combination company” refers to HF2 following the consummation of the Business Combination.

In this document the following terms shall have the meanings set forth below:

“Acquired Units” means the Class A Units to be acquired by us pursuant to the Investment Agreement in an amount equal to the aggregate number of shares of Class A Common Stock outstanding immediately after the consummation of the transactions contemplated by the Investment Agreement and after giving effect to the Redemption.

“Additional Employee Units” means up to 5,200,000 Class B Units that may be granted to ZAIS employees during the first five years after the Closing, if the Total Per Share Value meets or exceeds specified thresholds ranging from $12.50 to $21.50, subject to vesting, lock-ups, and other restrictions.

“Additional Founder Units” means up to 2,800,000 Class A Units that will be released to the ZGP Founder Members during the first five years after the Closing if the Total Per Share Value meets or exceeds specified thresholds ranging from $12.50 to $21.50.

“Business Combination” means the transactions contemplated by the Investment Agreement, including the acquisition by HF2 of the Acquired Units.

“Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of HF2.

“Class A Units” means the Class A Units of ZGP.

“Class B Common Stock” means the Class B common stock, par value $0.000001 per share, of HF2.

“Class B Units” means the Class B Units of ZGP.

“Closing” or “Closing of the Business Combination” means the closing of the Business Combination pursuant to the Investment Agreement.

“Closing Acquisition Consideration” means the contribution amount for the Acquired Units under the Investment Agreement, which will be an amount in cash equal to the assets in the Trust Account immediately after giving effect to the Redemption and net of the Expense Payments.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Agreement” means the Exchange Agreement that the Company will enter into with ZGP, the ZGP Founder Members and the ZGH Class B Trust at the Closing, the form of which is attached to this proxy statement as Annex C.

“Expense Payments” means our aggregate costs, fees and expenses incurred in connection with or pursuant to the consummation of the Business Combination (including deferred commissions payable to investment advisors).

“Founders’ Shares” means the 4,398,750 shares of Class A Common Stock issued prior to the IPO.

“Investment Agreement” means the Investment Agreement, dated as of September 16, 2014, by and among ZGP, the Company and the ZGP Founder Members, as amended.

“IPO” means HF2’s initial public offering, consummated on March 27, 2013, through the sale of 17,595,000 shares of Class A Common Stock (including 2,295,000 shares of Class A Common Stock sold on April 1, 2013 pursuant to the underwriters’ exercise in full of their over-allotment option) at $10.00 per share.

“New LLC Agreement” means the Second Amended and Restated Limited Liability Company Agreement of ZGP that we and the ZGP Founder Members will enter into at the Closing, the form of which is attached to this proxy statement as Annex B.

“public shares” means shares of Class A Common Stock issued in the IPO.

“public stockholders” means holders of public shares, including the Sponsors to the extent the Sponsors hold public shares, provided that the Sponsors will be considered a “public stockholder” only with respect to any public shares held by them.

“Redemption” means the redemption of shares of Class A Common Stock by our public stockholders in connection with the consummation of the Business Combination.

“Redemption Price” means an amount of cash per share of Class A Common Stock equal to the quotient determined by dividing (i) the amount in the Trust Account, net of any interest thereon and net of any income, franchise or other taxes payable by (ii) the total number of shares of Class A Common Stock issued in our IPO that remain outstanding, calculated as of the date of the consummation of the Business Combination.

“Registration Rights Agreement” means the Registration Rights Agreement that the Company will enter into with the ZGP Founder Members at the Closing, the form of which is attached to this proxy statement as Annex D.

“Securities Act” means the Securities Act of 1933, as amended.

“special meeting” means the special meeting in lieu of the 2014 annual meeting of stockholders of HF2 that is the subject of this proxy statement.

“Sponsors” means the holders of our shares of Class A Common Stock prior to our IPO.

“Sponsors’ Shares” means 1,598,400 shares of Class A Common Stock sold to the Sponsors in a private placement simultaneously with the consummation of our IPO and the closing of the sale of shares to the underwriters in our IPO pursuant to the exercise of the underwriters’ over-allotment option.

“Tax Receivable Agreement” means the Tax Receivable Agreement that the Company will enter into with the ZGP Founder Members at the Closing, the form of which is attached to this proxy statement as Annex E.

“Total Per Share Value” means the sum of the average per share closing price over any 20 trading-day period of the Class A Common Stock plus cumulative dividends paid on the Class A Common Stock between the Closing and the day prior to such 20 trading-day period.

“Trust Account” means the trust account that holds the proceeds of our IPO.

“Units” means the Class A Units and Class B Units of ZGP.

“ZAIS” means ZAIS Group, LLC, a Delaware limited liability company.

“ZGH Class B Trust” means a trust to be established to hold all of the outstanding shares of Class B Common Stock pursuant to the trust agreement, the form of which is attached as Annex I, and of whom Christian Zugel will be the initial sole trustee.

“ZGP” means ZAIS Group Parent, LLC, a Delaware limited liability company.

“ZGP Founder Members” means the members of ZGP that are party to the Investment Agreement.

“2014 Stock Plan” means the proposed ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan.

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR STOCKHOLDERS

The following questions and answers briefly address some commonly asked questions about the proposals to be presented at the special meeting, including with respect to the proposed Business Combination. The following questions and answers do not include all the information that is important to our stockholders. We urge stockholders to read carefully this entire proxy statement, including the annexes and the other documents referred to herein.

Q:       Why am I receiving this proxy statement?

A:       Our stockholders are being asked to consider and vote upon a proposal to approve and adopt the Investment Agreement and the Business Combination, among other proposals. We have entered into the Investment Agreement with ZGP and the ZGP Founder Members providing for the acquisition by us of the Acquired Units. Pursuant to the Investment Agreement, we will contribute to ZGP an amount in cash equal to the assets in the Trust Account immediately after giving effect to the Redemption less the Expense Payments, which we refer to as the Closing Acquisition Consideration. In connection with the Investment Agreement, we also will enter into the following agreements, each of which is discussed in this proxy statement: (i) the New LLC Agreement, (ii) the Exchange Agreement, (iii) the Registration Rights Agreement and (iv) the Tax Receivable Agreement. For more information about the Investment Agreement and related transaction agreements, see the section entitled “Proposal No. 1—Approval of the Business Combination—The Investment Agreement” and “Proposal No. 1—Approval of the Business Combination—Related Agreements.”

Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its annexes.

Q:       What is being voted on at the special meeting?

A:       Below are proposals on which our stockholders are being asked to vote.

1. To approve and adopt the Investment Agreement and the transactions contemplated by the Investment Agreement, which we refer to as the Business Combination Proposal;

2. To approve our second amended and restated certificate of incorporation, the form of which is attached to this proxy statement as Annex G, including to change our name from “HF2 FINANCIAL MANAGEMENT INC.” to “ZAIS Group Holdings, Inc.”, destagger our board of directors so that all directors will have one year terms, allow for stockholder action by written consent, and provide a Delaware forum selection clause for shareholder actions, which we refer to as the Amended and Restated Charter Proposal;

3. To elect five directors, effective upon the Closing, to serve on our board of directors until the 2015 annual meeting of stockholders and until their respective successors are duly elected and qualified, which we refer to as the Director Election Proposal;

4. To approve and adopt the ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan (an equity-based incentive plan), the form of which is attached to this proxy statement as Annex F, which we refer to as the 2014 Stock Plan Proposal; and

5. To adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more of the proposals submitted for stockholder vote at the special meeting, which we refer to as the Adjournment Proposal.

Q:       Are the proposals conditioned on one another?

A:       The Amended and Restated Charter Proposal is conditioned on the approval of the Business Combination Proposal. Each of the Director Election Proposal and the 2014 Stock Plan Proposal is conditioned on the approval of both the Business Combination Proposal and, unless waived by ZGP and the ZGP Founder Members, the Amended and Restated Charter Proposal. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth on this proxy statement. It is important for you to note that in the event either the Business Combination Proposal or (unless waived by ZGP and the ZGP Founder Members) the Charter Amendment Proposal does not receive the requisite vote for approval, then we cannot consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by March 21, 2015, we will be required to dissolve and liquidate The Trust Account by returning the then remaining funds in the Trust Account to the holders of our public shares.

Q:       Why are we providing our stockholders with the opportunity to vote on the Business Combination?

A:       Under our amended and restated certificate of incorporation, we must provide all holders of our public shares with the opportunity to vote on the Business Combination and the opportunity have their public shares redeemed upon the closing of the Business Combination.

Q:       What will happen in the Business Combination?

A:       At the Closing of the Business Combination, we will acquire the Acquired Units in exchange for the Closing Acquisition Consideration. Assuming no Closing related adjustments, the ZGP Founder Members will initially retain an aggregate of 7,000,000 Class A Units at the Closing. The ZGP Founder Members will also have the right to the Additional Founder Units if certain Total Per Share Value thresholds are met or exceeded. In addition, at the Closing, all of the outstanding shares of Class B Common Stock will be transferred from the HF2 Class B Trust to the ZGP Founder Members and immediately deposited with the ZGH Class B Trust of which Mr. Christian Zugel, the founder, Chief Investment Officer and Managing Member of ZAIS, is the sole initial trustee.

Q:       What equity stake will (i) our current stockholders hold in us after the Closing and (ii) we hold in ZGP after the Closing?

A:       Assuming that no holders of Class A Common Stock exercise their Redemption rights, it is anticipated that, upon completion of the Business Combination, our public stockholders will retain approximately 71% of our shares of Class A Common Stock, our Sponsors will retain approximately 29% of our shares of Class A Common Stock, and the ZGH Class B Trust will hold 20,000,000 shares of Class B Common Stock. In turn, it is anticipated we will hold approximately 73.3% of the outstanding Units of ZGP, the ZGP Founder Members will hold approximately 21.7% of the outstanding Units of ZGP, and ZAIS employees will hold approximately 5% of the Units of ZGP, subject to certain vesting provisions. If any of our public stockholders exercise their redemption rights, then (i) the ownership interest in us of our public stockholders will decrease and the ownership interest in us of our Sponsors will increase and (ii) our ownership interest in ZGP will decrease and the ownership interest of the ZGP Founder Members and ZAIS employees in ZGP will increase. The ownership percentages with respect to us and ZGP following the Business Combination do not take into account (i) the release of Additional Founder Units or the issuance of Additional Employee Units, which would represent approximately 19.9% of the Units outstanding upon the Closing after giving effect to such release and issuance, or (ii) Closing related adjustments to the number of Class A Units retained by the ZGP Founder Members. If the actual facts are different than these assumptions (which they are likely to be), the percentage ownership retained by our existing stockholders in us will be different and the percentage ownership retained by us in ZGP will be different.

See “Summary of the Proxy Statement—Impact of the Business Combination on HF2’s Public Float,” “Summary of the Proxy Statement—Organization Structure” and “Unaudited Pro Forma Condensed Combined Financial Information” for further information.

Q:       What conditions must be satisfied to complete the Business Combination?

A:       There are a number of closing conditions in the Investment Agreement, including that our stockholders have approved and adopted the Business Combination Proposal, the amount in our Trust Account (after giving effect to Redemptions and the Expense Payments) when aggregated with any available cash to HF2 and any proceeds from equity issuances by ZGP, totals at least $100 million and, unless waived by ZGP and the ZGP Founder Members, and HF2’s certificate of incorporation is amended and restated as set forth in Annex G to this proxy statement, which requires our stockholder approval. For a summary of the conditions that must be satisfied or waived prior to completion of the Business Combination, see the section entitled “Proposal No. 1—Approval of the Business Combination—The Investment Agreement—Conditions to the Closing of the Business Combination.”

Q:       Why is HF2 proposing the Amended and Restated Charter Proposal?

A:       The amendment and restatement of our certificate of incorporation is a condition to the consummation of the Business Combination under the Investment Agreement. See the section entitled “Proposal No. 2—Approval of Second Amended and Restated Certificate of Incorporation” for more information.

Q:       Why is HF2 proposing the Director Election Proposal?

A:       We believe it is in the best interests of our stockholders to allow our stockholders to vote upon the election of certain directors because our stockholders have not yet had the opportunity to vote on the election of directors. We also believe it is appropriate to have a transition of management in connection with the Business Combination. See the section entitled “Proposal No. 3—Election of Directors to the Board of Directors” for additional information.

Q:       Why is HF2 proposing the 2014 Stock Plan Proposal?

A:       The purpose of the 2014 Stock Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling us to offer eligible employees, directors and consultants cash and stock-based incentive awards in order to attract, retain and reward these individuals and strengthen the mutuality of interests between them and our stockholders. See the section entitled “Proposal No. 4—Approval and Adoption of the ZAIS Group Holdings, Inc. 2014 Stock Incentive Plan” for more information.

Q:       What happens if I sell my shares of Class A Common Stock before the special meeting?

A:       The record date for the special meeting is earlier than the date the Business Combination is expected to be completed. If you transfer your shares of Class A Common Stock after the record date, but before the special meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the special meeting. However, you will not be able to seek Redemption of your shares of Class A Common Stock because you will no longer be able to deliver them for cancellation upon consummation of the Business Combination. If you transfer your shares of Class A Common Stock prior to the record date, you will have no right to vote those shares at the special meeting or to redeem those shares for a pro rata portion of the proceeds held in the Trust Account.

Q:       How will shares of Class B Common Stock be voted for each proposal?

A: Prior to the Business Combination and in connection with any vote on the Business Combination, including the Business Combination Proposal, the shares of Class B Common Stock will be voted on all matters presented to holders of our common stock for a vote in proportion to the vote of the holders of the Class A Common Stock. As a result, prior to consummation of the Business Combination, holders of a majority of our shares of Class A Common Stock will control the vote on any matter submitted to our stockholders for a vote.

Q:       What vote is required to approve the proposals presented at the special meeting?

A:       Approval of the Business Combination Proposal requires the affirmative vote of a majority of the outstanding shares of Class A Common Stock voted on the proposal. Shares of Class B Common Stock will be voted in proportion to the vote of the shares of Class A Common Stock on the Business Combination Proposal and each of the other proposals. A failure to vote your shares by proxy or in person, an abstention or the failure of an HF2 stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee (a “broker non-vote”) will, assuming a valid quorum is established, have no effect on the outcome of the vote on the Business Combination Proposal.

Each of the 2014 Stock Plan Proposal and Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of Class A Common Stock and Class B Common Stock, voting together as a single class, represented in person or by proxy and entitled to vote thereon at the special meeting. A failure to vote your shares by proxy or in person and a broker non-vote will, assuming a valid quorum is established, have no effect on the outcome of the vote on these proposals, but an abstention will have the same effect as a vote against each of these proposals.

Approval of the Amended and Restated Charter Proposal requires the affirmative vote of holders of a majority of our outstanding shares of Class A Common Stock and Class B Common Stock, voting as separate classes. A failure to vote your shares, an abstention and a broker non-vote is the equivalent of a vote against the Amended and Restated Charter Proposal. Because the amendment and restatement of our certificate of incorporation is a condition to the Closing, even if the Business Combination is approved by our stockholders, the Amended and Restated Charter Proposal will also need to be approved for the Business Combination to occur.

Directors are elected by a plurality of all of the votes cast by holders of shares of Class A Common Stock and Class B Common Stock represented in person or by proxy and entitled to vote thereon at the special meeting. This means that the five nominees will be elected if they receive more affirmative votes than any other nominee for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Assuming a valid quorum is established, failure to vote your shares by proxy or in person, broker non-votes, and abstentions will have no effect on the election of directors.

Q:       May HF2, the Sponsors or HF2’s directors, officers, advisors or their affiliates purchase shares in connection with the Business Combination?

A:       None of our Sponsors, officers, directors or Advisory Board members or their affiliates has indicated any intention to purchase any shares of Class A Common Stock from persons in the open market or in private transactions prior to the special meeting. If, however, a significant number of stockholders vote, or indicate an intention to vote, against the Business Combination Proposal, our sponsors, officers, directors, Advisory Board members or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. The purpose of such arrangements would be to increase the likelihood of satisfaction of the requirements that the holders of a majority of our shares of Class A Common Stock voted are voted in favor of the Business Combination Proposal. All public shares purchased by our sponsors, officers, directors or Advisory Board members or their affiliates pursuant to such arrangements would be voted in favor of the proposed initial business combination.

Q:       How many votes do I have at the special meeting?

A:       Holders of shares of Class A Common Stock are entitled to one vote at the special meeting for each share of Class A Common Stock held of record as of [●], 2014, the record date for the special meeting. As of the close of business on the record date, there were 23,592,150 outstanding shares of Class A Common Stock. The HF2 Class B Trust, as the holder of the 20,000,000 shares of Class B Common Stock, is entitled to ten votes at the special meeting for each share of Class B Common Stock held of record as of [●], 2014. The shares of Class B Common Stock will be voted in proportion to the vote of shares of Class A Common Stock and, therefore, will not have an effect on the vote on any of the proposals.

Q:       What constitutes a quorum at the special meeting?

A:       Holders of a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting, present in person or represented by proxy, shall constitute a quorum, except that for the Amended and Restated Charter Proposal, holders of a majority of the issued and outstanding shares of each class of our common stock, present in person or represented by proxy, shall constitute a quorum. In the absence of a quorum, the holders of a majority of our outstanding common stock, present in person or represented by proxy, will have power to adjourn the special meeting. As of the record date for the special meeting, [●] shares of our common stock would be required to achieve a quorum.

Q:       How will HF2’s Sponsors, directors and officers vote?

A:       In connection with our IPO, we entered into agreements with each of our Sponsors, directors and officers, pursuant to which each agreed (i) to vote any Founders’ Shares, Sponsors’ Shares and any public shares purchased in or after the IPO in favor of the Business Combination Proposal and (ii) not to redeem any Founders’ Shares or Sponsors’ Shares in connection with the vote to approve the Business Combination Proposal. In addition, our officers, directors and Sponsors (other than Bulldog Investors and White Sand Investor Group, LP) have agreed not to redeem any public shares purchased in or after our IPO in connection with the vote to approve the Business Combination Proposal. As of the date of this proxy statement, neither we nor any of our Sponsors, directors or officers has entered into any agreements, or are in negotiations to purchase shares of Class A Common Stock. Currently, our Sponsors, directors and officers own approximately 29.2% of our issued and outstanding shares of Class A Common Stock, including all of the Founders’ Shares and Sponsors’ Shares.

Q:       What interests do HF2’s current officers and directors have in the Business Combination?

A:       Our directors and executive officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interest. These interests may influence our directors in making their recommendation that you vote in favor of the approval of the Business Combination. See “Proposal No. 1—Approval of the Business Combination—Certain Benefits of HF2’s Directors and Officers and Others in the Business Combination.”

Q:       What happens if I vote against the Business Combination Proposal?

A:       If the Business Combination Proposal is not approved and we do not otherwise consummate an alternative business combination by March 21, 2015, we will be required to dissolve and liquidate the Trust Account by returning the then remaining funds in such account to the holders of the shares of Class A Common Stock issued in our IPO.

Q:       Do I have Redemption rights?

A:       Pursuant to our amended and restated certificate of incorporation, we are providing our public stockholders with the opportunity to redeem, upon the consummation of the Business Combination, shares of Class A Common Stock then held by them for an amount of cash per share equal to the Redemption Price. For illustrative purposes, based on funds in the Trust Account of approximately $[●] on [●], 2014, the Redemption Price would have been approximately $10.50. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal.

A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking Redemption rights with respect to more than 20% of the shares of Class A Common Stock sold in our IPO; provided, however, that a public stockholder is entitled to vote against the Business Combination Proposal with respect to all shares of Class A Common Stock sold in our IPO owned by him or his affiliates.

Q:       Will how I vote affect my ability to exercise Redemption rights?

A:       No. You may exercise your Redemption rights whether you vote your shares of Class A Common Stock for or against the Business Combination Proposal or any other proposal described in this proxy statement.

Q:       How do I exercise my Redemption rights?

A:       In order to exercise your Redemption rights, you must (i) affirmatively vote either for or against the Business Combination Proposal, (ii) make a certification that you are not part of a group seeking Redemption rights with respect to more than 20% of the shares of Class A Common Stock sold in our IPO, and (iii) prior to [●] p.m., Eastern Time on [●] (two business days before the special meeting), (x) submit a written request to our transfer agent that we redeem your public shares for cash, and (y) deliver your stock to our transfer agent either physically or electronically through the Depository Trust Company, or DTC, DWAC (Deposit/Withdrawal At Custodian) System. The address of Continental Stock Transfer & Trust Company, our transfer agent, is listed under “—Who can help answer my questions?” If you are not a record holder and hold your shares in “street name” through a bank, broker or other nominee, you will need to contact your broker, nominee or agent that is the record holder and ask them to exercise Redemption rights on your behalf.

Any demand for Redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the vote is taken with respect to the Business Combination. If you delivered your shares for Redemption to our transfer agent and decide within the required timeframe not to exercise your Redemption rights, you may request that our transfer agent return the shares (physically or electronically). You may make such request by contacting our transfer agent at the phone number or address listed under the question “Who can help answer my questions?” below. If you are not a record holder and hold your shares in “street name” through a bank, broker or other nominee, you will need to contact your broker, nominee or agent that is the record holder and ask them to withdraw your Redemption demand.

If the Business Combination Proposal is not approved or the Business Combination is not consummated for any reason, then the public stockholders who elected to exercise their Redemption rights will not be entitled to redeem their IPO shares, and we will promptly return any IPO shares delivered to us by the public stockholders.

Q:       What are the federal income tax consequences of exercising my redemption rights?

A:       Holders of our public shares who exercise their Redemption rights to receive cash from the Trust Account in exchange for their public shares generally will be required to treat the transaction as a sale or exchange of such shares for U.S. federal income tax purposes, and to recognize gain or loss upon such sale or exchange in an amount equal to the difference, if any, between the amount of cash received in respect of such shares and the adjusted U.S. federal income tax basis of such holder in the shares of Class A Common Stock redeemed. Such gain or loss generally should be treated as capital gain or loss if such shares were held as a capital asset on the date of the Redemption. The Redemption, however, may be treated as a distribution in respect of our public shares for U.S. federal income tax purposes if the Redemption does not effect a meaningful reduction in the redeeming stockholder’s percentage ownership in us (whether such ownership is direct or through the application of certain attribution and constructive ownership rules). Any amounts treated as such a distribution will constitute a dividend to the extent not in excess of our current and accumulated earnings and profits as measured for U.S. federal income tax purposes. Any amounts treated as a distribution and that are in excess of our current and accumulated earnings and profits will reduce the redeeming stockholder’s basis in his or her redeemed Class A Common Stock, and any remaining amount will be treated as gain realized on the sale or other disposition of the Class A Common Stock and taxed as described above. For more information, see the section entitled “Proposal No. 1— Approval of the Business Combination—Material U.S. Federal Income Tax Consequences of the Business Combination.”

Q:       Do I have appraisal rights if I object to the proposed Business Combination?

A:       No. There are no appraisal rights available to holders of Class A Common Stock or Class B Common Stock in connection with the Business Combination.

Q:       What happens to the funds held in the Trust Account upon consummation of the Business Combination?

A:       If the Business Combination is consummated, the funds held in the Trust Account will be released to pay (i) the Closing Acquisition Consideration, (ii) holders of Class A Common Stock who properly exercise their Redemption rights, (iii) a $7.0 million advisory fee split between EarlyBirdCapital, Inc. and Sandler O’Neill & Partners, L.P. and (iv) all other fees, costs and expenses (including regulatory fees, legal fees, accounting fees, printer fees, and other professional fees) that were incurred by the Company in connection with the transactions contemplated by the Business Combination.

Q:       What happens if the Business Combination is not consummated?

A:       There are certain circumstances under which the Investment Agreement may be terminated. See the section entitled “Proposal No. 1—Approval of the Business Combination—The Investment Agreement—Termination” for information regarding the parties’ specific termination rights.

If, as a result of the termination of the Investment Agreement or otherwise, we are unable to complete the Business Combination or another business combination transaction by March 21, 2015, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares of Class A Common Stock, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest but net of taxes payable, divided by the number of then outstanding public shares of Class A Common Stock, which redemption will completely extinguish public stockholders’ rights as stockholders (except for the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and to the requirements of other applicable law.

We expect that the amount of any distribution holders of Class A Common Stock will be entitled to receive upon our dissolution will be approximately the same as the amount they would have received if they had redeemed their shares in connection with the Business Combination, subject in each case to our obligations under the Delaware General Corporation Law to provide for claims of creditors and other requirements of applicable law. Holders of our Founders’ Shares and Sponsors’ Shares have waived any right to any liquidation distribution with respect to those shares.

Q:       When is the Business Combination expected to be completed?

A:       It is currently anticipated that the Business Combination will be consummated promptly following the special meeting, provided that all other conditions to the consummation of the Business Combination have been satisfied or waived. The Investment Agreement provides that the closing of our investment in ZGP may not occur prior to January 6, 2015. In any event, we expect the Closing of the Business Combination to occur, on or prior to [●].

For a description of the conditions to the completion of the Business Combination, see the section entitled “Proposal No. 1—Approval of the Business Combination—The Investment Agreement—Conditions to the Closing of the Business Combination.”

Q:       What do I need to do now?

A:       You are urged to read carefully and consider the information contained in this proxy statement, including the annexes, and to consider how the Business Combination will affect you as a stockholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

Q:       How do I vote?

A:       If you were a holder of record of shares of Class A Common Stock on [●], the record date for the special meeting, you may vote with respect to the proposals in person at the special meeting, or by (1) calling the toll-free number specified on the enclosed proxy card and following the instructions when prompted, (2) accessing the Internet website specified on the enclosed proxy card and following the instructions provided to you, or (3) completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name,” you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the special meeting and vote in person, obtain a proxy from your broker, bank or nominee.

Q:       What will happen if I abstain from voting or fail to vote at the special meeting?

A:       At the special meeting, we will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. An abstention (i) will have no effect on the Business Combination Proposal and the Director Election Proposal and (ii) will be the equivalent of a vote against the 2014 Stock Plan Proposal, Adjournment Proposal and the Amended and Restated Charter Proposal. For purposes of approval, a failure to vote (i) will have no effect on the Business Combination Proposal, the Director Election Proposal, 2014 Stock Plan Proposal, and Adjournment Proposal and (ii) will be the equivalent of a vote against the Amended and Restated Charter Proposal. Additionally, if you abstain from voting or fail to vote on the Business Combination Proposal, you will not be able to exercise your Redemption rights (as described above).

Q:       What will happen if I sign and return my proxy card without indicating how I wish to vote?

A:       Signed and dated proxies received by us without an indication of how the stockholder intends to vote on a proposal will be voted (i) “FOR” the Business Combination Proposal, Amended and Restated Charter Proposal, Director Election Proposal, 2014 Stock Plan Proposal, and Adjournment Proposal and (ii) at the discretion of the proxy holder with respect to any other matters that may properly come before the special meeting or any adjournment or postponement of the special meeting.

Q:       If I am not going to attend the special meeting in person, should I return my proxy card instead?

A:       Yes. Whether you plan to attend the special meeting or not, please read the enclosed proxy statement carefully, and vote your shares by one of the methods described in “—How do I vote?”

Q:       If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

A:       No. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. We believe the proposals presented to the stockholders will be considered non-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker, or other nominee may deliver a proxy card expressly indicating that it is not voting your shares. Broker non-votes will be not counted for the purpose of determining the existence of a quorum or for purposes of determining the number of votes cast at the special meeting. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.

Q:       May I change my vote after I have mailed my signed proxy card?

A:       Yes. You may change your vote by (i) entering a new vote by Internet or telephone, (ii) sending a later-dated, signed proxy card to our secretary at the address listed below so that it is received by our secretary prior to the special meeting or (iii) attending the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to our secretary, which must be received by our secretary prior to the special meeting.

Q:       What should I do if I receive more than one set of voting materials?

A:       You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

Q:       Who will solicit and pay the cost of soliciting proxies?

A:       We will pay any cost of soliciting proxies for the special meeting. We will reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Class A Common Stock for their expenses in forwarding soliciting materials to beneficial owners of Class A Common Stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

Q:       Who can help answer my questions?

A:       If you have questions about the proposals or if you need additional copies of the proxy statement or the enclosed proxy card you should contact:

R. Bradley Forth

Chief Financial Officer & Secretary

HF2 Financial Management Inc.

999 18th Street, Suite 3000

Denver, Colorado 80202

Tel: (303) 498-9737

Email: bforth@hf2financial.com

To obtain timely delivery, our stockholders must request the materials no later than five business days prior to the special meeting.

You may also obtain additional information about us from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.”

If you intend to seek Redemption of your shares of Class A Common Stock, you will need to send a letter demanding Redemption and deliver your stock (either physically or electronically) to our transfer agent at least two days prior to the special meeting. If you are not a record holder and hold your shares in “street name” through a bank, broker or other nominee, you will need to contact your broker, nominee or agent that is the record holder and ask them to exercise Redemption rights on your behalf.

If you have questions regarding the certification of your position or delivery of your stock, please contact:

Continental Stock Transfer & Trust Company

17 Battery Place

New York, New York 10004

Attn: [●]

E-mail: [●]@continentalstock.com

SELECTED HISTORICAL FINANCIAL INFORMATION OF HF2

The following table sets forth selected historical financial information derived from HF2’s unaudited interim financial statements as of June 30, 2014 and for the six months ended June 30, 2014 and for the period from October 5, 2012 (inception) to June 30, 2014 and audited financial statements as of December 31, 2013. You should read the following selected financial information in conjunction with the section entitled “HF2 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and HF2’s financial statements and the related notes appearing elsewhere in this proxy statement.

SUPPLEMENTARY FINANCIAL INFORMATION OF HF2

The following table summarizes quarterly financial data of HF2 for the fiscal year ended December 31, 2013 and the first two fiscal quarters of 2014. You should read the following supplementary financial information in conjunction with the section entitled “HF2 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and HF2’s financial statements and the related notes appearing elsewhere in this proxy statement.

SELECTED HISTORICAL FINANCIAL INFORMATION OF ZGP

The following table sets forth selected historical financial information derived from ZGP’s audited financial statements as of and for the years ended December 31, 2013 and December 31, 2012 and the unaudited interim financial statements as of and for the six months ended June 30, 2014 and June 30, 2013 included elsewhere in this proxy statement. You should read the following selected financial information in conjunction with the section entitled “ZGP Management’s Discussion and Analysis of Financial Condition and Results of Operations” and ZGP’s financial statements and the related notes appearing elsewhere in this proxy statement.

(1) Our calculations of Distributable Earnings and Adjusted EBITDA may not be directly comparable to other similar non-GAAP financial measures reported by other asset managers. ZGP believes that Distributable Earnings and Adjusted EBITDA are useful benchmarks for measuring ZGP's performance. Management also believes that investors should review the same supplemental financial measures that management uses to analyze the business. These measures supplement and should be considered in addition to and not in lieu of the results of operations prepared in accordance with GAAP. Refer to the "Supplemental Financial Information" included in the notes to the consolidated financial statements included elsewhere in this proxy statement for more information on the differences between ZGP’s financial results reported pursuant to GAAP and its financial results reported as supplemental data. For reconciliations of ZGP's Distributable Earnings and Adjusted EBITDA to the most comparable GAAP measures, please see "ZGP Management's Discussion and Analysis of Financial Condition and Results of Operations Distributable Earnings and Adjusted EBITDA Reconciliations."

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The selected unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information included elsewhere in this proxy statement.

The unaudited pro forma condensed combined statements of operations information for the six months ended June 30, 2014 and the year ended December 31, 2013 give pro forma effect to the Business Combination as if it had occurred on January 1, 2013. The unaudited pro forma condensed combined statement of operations information for the six months ended June 30, 2014 and the year ended December 31, 2013 was derived from ZGP’s unaudited consolidated statement of operations for the six months ended June 30, 2014, ZGP’s audited consolidated statement of operations for the year ended December 31, 2013, HF2’s unaudited consolidated statement of income for the six months ended June 30, 2014 and HF2’s audited statement of income for the year ended December 31, 2013.

The unaudited pro forma condensed combined balance sheet as of June 30, 2014 assumes that the Business Combination had occurred on June 30, 2014.

The unaudited pro forma condensed combined balance sheet information as of June 30, 2014 was derived from ZGP’s unaudited consolidated balance sheet as of June 30, 2014 and HF2’s unaudited consolidated balance sheet as of June 30, 2014.

The pro forma adjustments are based on the information currently available. The assumptions and estimates underlying the pro forma adjustments are described in the section entitled “Unaudited Pro Forma Condensed Financial Information.” The unaudited pro forma condensed combined statement of operations is not necessarily indicative of what the actual results of operations would have been had the Business Combination taken place on the date indicated, nor is it indicative of the future consolidated results of operations of the post-combination company. The selected unaudited pro forma condensed combined financial information below should be read in conjunction with the sections entitled “Unaudited Pro Forma Condensed Combined Financial Information,” “ZGP Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and notes thereto of HF2 and ZGP.

The scenarios presented in the following pro forma information assume, in one case, that no shares of Class A Common Stock are redeemed and, in the other case, that 7,142,857 of our outstanding shares of Class A Common Stock are redeemed (which is the maximum number of shares of Class A Common Stock that may be redeemed in order for us to satisfy the condition to Closing that we must have at least $100 million of cash in the Trust Account):

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this proxy statement, and other statements that we may make, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, for example, statements about (1) our ability to complete and the benefits of the Business Combination; and (2) our future financial or business performance, strategies and expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.

We caution that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously disclosed in the our filings with the SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) our inability to consummate the Business Combination and realize the benefits of such transaction, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably, and retain its management and key employees; (2) the occurrence of any event, change or other circumstances that could give rise to the termination of the Investment Agreement; (3) the outcome of any legal proceedings that may be instituted against us, ZGP or others following the announcement or consummation of the Business Combination; (4) the inability to meet NASDAQ’s listing standards following the proposed transaction; (5) the risk that the Business Combination disrupts current plans and operations of us or ZAIS as a result of the announcement and consummation of the transactions described herein; (6) costs related to the Business Combination; (7) changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (8) the relative and absolute investment performance of advised or sponsored investment products; (9) the impact of capital improvement projects; (10) the impact of future acquisitions or divestitures; (11) the unfavorable resolution of legal proceedings; (12) the extent and timing of any share repurchases; (13) the impact, extent and timing of technological changes and the adequacy of intellectual property protection; (14) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us; (15) terrorist activities and international hostilities, which may adversely affect the general economy, financial and capital markets, specific industries, and us; (16) the ability to attract and retain highly talented professionals; and (17) the impact of changes to tax legislation and, generally, our tax position.

RISK FACTORS

The following risk factors apply to the business and operations of ZGP and its consolidated subsidiaries, which will also apply to the business and operations of the combined company following the completion of the Business Combination, and to HF2 and the Business Combination. These risk factors are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of ZGP, HF2 and the Business Combination. You should carefully consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statement.” We, ZGP and its consolidated subsidiaries, and the combined company following the completion of the Business Combination may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included in this proxy statement.

Risks Related to ZGP’s and ZAIS’s Business and Industry

Difficult market and political conditions may adversely affect ZAIS’s business, including by reducing the value or hampering the performance of the investments made by ZAIS’s funds, accounts and investment products each of which could materially and adversely affect ZAIS’s business, results of operations and financial condition.

ZAIS’s business is materially affected by conditions in the global financial markets and economic and political conditions throughout the world, such as interest rates, availability and cost of credit, inflation or deflation, economic uncertainty, changes in laws (including laws relating to ZAIS’s taxation, taxation of ZAIS’s investors, the possibility of changes to tax laws in either the United States or any non-U.S. jurisdiction and regulations on asset managers), trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including wars, terrorist acts and security operations). These factors are outside of ZAIS’s control and may affect the level and volatility of asset prices and the liquidity and value of investments and ZAIS may not be able to or may choose not to manage its exposure to these conditions. Ongoing developments in the U.S. and global financial markets following the unprecedented turmoil in the global capital markets and the financial services industry in late 2008 and early 2009 continue to illustrate that the current environment is still one of uncertainty and instability for investment management businesses. These and other conditions in the global financial markets and the global economy may result in adverse consequences for ZAIS’s funds, accounts and investment products (collectively referred to as “funds” herein) and their respective investee companies, which could restrict such funds’ investment activities and impede such funds’ ability to effectively achieve their investment objectives.

In the event of a market downturn, each of ZAIS’s businesses could be affected in different ways. ZAIS’s funds may face reduced opportunities to sell and realize value from their existing investments, and a lack of suitable investments for the funds to make. In addition, adverse market or economic conditions could have an adverse effect on the returns of the funds that ZAIS manages, and therefore, ZAIS’s earnings. A general market downturn, or a specific market dislocation, may cause ZAIS’s revenue and results of operations to decline by causing:

Furthermore, while difficult market conditions may increase opportunities to make certain distressed asset investments, such conditions also increase the risk of default with respect to investments held by ZAIS’s funds with debt investments. The attractiveness of ZAIS’s funds relative to other investment products could decrease depending on economic conditions. ZAIS’s funds may also be adversely affected by difficult market conditions if ZAIS fails to predict the adverse effect of such conditions on particular investments, resulting in a significant reduction in the value of those investments.

The investment management business is competitive.

The investment management business is highly competitive, with competition based on a variety of factors, including investment performance, business relationships, quality of service provided to investors, investor liquidity and willingness to invest, fund terms (including fees), brand recognition and business reputation. ZAIS competes for investors with other investment managers, public and private funds, business development companies, small business investment companies and others. Numerous factors increase ZAIS’s competitive risks, including:

This competitive pressure could adversely affect ZAIS’s ability to make successful investments and limit ZAIS’s ability to raise future funds, either of which would adversely impact ZAIS’s business, results of operations and financial condition.

ZAIS’s assets under management have been subject to volatility.

Historically, ZAIS’s assets under management has fluctuated from time to time. ZAIS’s assets under management has declined significantly from its peak of $11.7 billion prior to the financial crisis in 2008 to $5 billion as of June 30, 2014, largely attributable to the return of investor capital from certain private equity style funds, the termination of certain collateralized debt obligations (“CDOs”) managed by ZAIS, certain investor redemptions and the challenges of raising significant new assets to replace those assets being returned to investors.

Further, ZAIS currently has additional funds representing total assets under management of approximately $1.5 billion that are winding down and are in liquidation. If ZAIS is unable to raise significant new assets to replace those that will be returned to investors its assets under management would be subject to further decline resulting in a lower base of assets on which it charges management fees and may receive incentive income. This, in turn, would negatively impact ZAIS’s revenue and results of operations.

ZAIS derives a substantial portion of its revenues from funds managed pursuant to advisory agreements that may be terminated.

The applicable investment advisory agreement for each of ZAIS’s funds may permit the investors of each respective fund to remove ZAIS as investment manager in certain circumstances. ZAIS’s managed accounts are governed by investment management agreements that may be terminated by investors, generally upon little or no notice and with or without cause, as set forth in the applicable agreement. Termination of these agreements would negatively affect ZAIS’s revenue, which could have a material adverse effect on ZAIS’s results of operations.

ZAIS may not be able to maintain its current fee structure as a result of industry pressure from fund investors to reduce fees, which could have an adverse effect on its profit margins and results of operations.

ZAIS may not be able to maintain its current fee structure as a result of industry pressure from fund investors to reduce fees. Although ZAIS’s investment management fees vary among and within asset classes, historically it has competed primarily on the basis of its performance and not on the level of its investment management fees relative to those of its competitors. In recent years, however, there has been a general trend toward lower fees in the investment management industry. More recently, institutional investors have been allocating increasing amounts of capital to alternative investment strategies as well as attempting to reduce management fees and incentive income to external managers, whether through direct reductions, deferrals or rebates. ZAIS’s average management fees charged with respect to certain asset types has declined as a result of this industry pressure towards lower fees. Although ZAIS has no obligation to modify any of its fees with respect to its existing funds, it may experience pressure to do so. No assurance can be made that ZAIS will succeed in providing investment returns and service that will allow ZAIS to maintain its current fee structure. Fee reductions on existing or future businesses could have an adverse effect on ZAIS’s profit margins and results of operations. For more information about ZAIS’s fees see “Information About ZGP and ZAIS—Fee and Income Structure.

The historical returns attributable to ZAIS’s funds should not be considered as indicative of the future results of ZAIS or any of its funds or of ZAIS’s future results or of any returns expected on an investment in Class A Common Stock.

An investment in Class A Common Stock is not an investment in any of ZAIS’s funds. The historical performance of ZAIS’s funds is relevant to ZAIS primarily insofar as it is indicative of fees it has earned in the past and may earn in the future and ZAIS’s reputation and ability to raise new funds. The historical and potential returns of the funds it advises will not, however, be directly linked to returns on Class A Common Stock. Therefore, you should not conclude that positive performance of the funds ZAIS advises will necessarily result in positive returns on an investment in Class A Common Stock, nor should you conclude that ZAIS’s prior fund performance is indicative of the future results of ZAIS’s funds. Poor future performance of the funds ZAIS advises could cause a decline in ZAIS’s revenues and could therefore have a negative effect on ZAIS’s operating results and returns on the Class A Common Stock.

Moreover, the historical returns of ZAIS’s funds should not be considered indicative of the future returns of these funds or from any future funds it may raise, in part because:

The future internal rate of return for any current or future fund may vary considerably from the historical internal rate of return generated by any particular fund, or for ZAIS’s funds as a whole. Future returns will also be affected by the risks described elsewhere in this prospectus, including risks of the industries and businesses in which a particular fund invests.

Poor performance of ZAIS’s funds would cause a decline in ZAIS’s revenue and results of operations, and would adversely affect ZAIS’s ability to raise capital for future funds.

ZAIS’s revenue is derived principally from two sources: (1) management fee income, based on the size of ZAIS’s funds and (2) incentive income, based on the performance of ZAIS’s funds. In the event that any of ZAIS’s funds perform poorly, ZAIS’s revenue and results of operations will decline, and it will likely be more difficult for ZAIS to raise new capital. In addition, fund investors may withdraw their investments in ZAIS’s funds as a result of poor performance of ZAIS’s funds or otherwise. ZAIS’s investors and potential investors continually assess ZAIS’s funds’ performance and ZAIS’s ability to raise capital.

Employee misconduct could harm ZAIS by impairing ZAIS’s ability to attract and retain investors and subjecting ZAIS to significant legal liability, regulatory scrutiny and reputational harm.

ZAIS’s ability to attract and retain investors and to pursue investment opportunities for ZAIS’s funds depends heavily upon the reputation of ZAIS’s professionals, especially ZAIS’s senior professionals. ZAIS is subject to a number of obligations and standards arising from ZAIS’s investment management business and ZAIS’s authority over the assets managed by ZAIS’s investment management business. Violation of these obligations and standards by any of ZAIS’s employees could adversely affect investors in ZAIS’s funds and us. ZAIS’s businesses often require that it deal with confidential matters of great significance to companies in which ZAIS’s funds may invest and the investors in the funds. If ZAIS’s employees were to use or disclose confidential information improperly, ZAIS could suffer serious harm to its reputation, financial position and current and future business relationships. It is not always possible to detect or deter employee misconduct, and the extensive precautions ZAIS takes to detect and prevent this activity may not be effective in all cases. If one or more of ZAIS’s employees were to engage in misconduct or were to be accused of such misconduct, ZAIS’s businesses and ZAIS’s reputation could be adversely affected and a loss of investor confidence could result, which would adversely impact ZAIS’s ability to raise future funds.

ZAIS may be subject to financial criminal activity which could result in financial loss or damage to ZAIS’s reputation.

Instances of financial criminal activity, personal trading violations and other abuses, including misappropriation of assets by internal or external perpetrators, may arise despite ZAIS’s internal control policies and procedures. Instances of such criminal activity by financial firms and their personnel, including those in the investment management industry, have led the U.S. government and regulators to increase enforcement of existing rules relating to such activities, adopt new rules and regulations and enhance oversight of the U.S. financial industry. As ZAIS expands its international operations, it will be subject to the rules of other jurisdictions that govern and control financial criminal activities and exposed to financial criminal activities on a more global scale. Compliance with existing and new rules and regulations may have the effect of increasing ZAIS’s expenses. Further, should any of ZAIS’s or ZAIS’s personnel be linked to financial criminal activity, either domestically or internationally, ZAIS would suffer material damage to its reputation which could result in a corresponding loss of clients, client assets and revenue.

ZAIS is vulnerable to reputational harm because it operates in an industry in which personal relationships, integrity and client confidence are of critical importance. For example, if an employee were to engage in illegal or suspicious activities, ZAIS could be subject to legal or regulatory sanctions and suffer serious reputational harm to its reputation (as a consequence of the negative perception resulting from such activities), and impairment to client relationships and the ability to attract new clients. ZAIS’s business often requires that it deal with confidential information. If any of ZAIS’s employees were to improperly use or disclose this information, even if inadvertently, it could be subject to legal or regulatory action and suffer serious harm to ZAIS’s reputation and current and future business relationships.

Reputational harm could result in a loss of assets under management and revenues.

The integrity of ZAIS’s brand is critical to ZAIS’s ability to attract and retain clients, business partners and employees and maintain relationships with consultants. ZAIS operates within the highly regulated financial services industry and various potential scenarios could result in harm to ZAIS’s reputation. They include internal operational failures, failure to follow investment or legal guidelines in the management of accounts, intentional or unintentional misrepresentation of ZAIS’s products and services in offering or advertising materials, public relations information, social media or other external communications, employee misconduct (including prohibited postings on social media) or investments in businesses or industries that are controversial to certain special interest groups. The negative publicity associated with any of these factors could harm ZAIS’s reputation and adversely impact relationships with existing and potential clients, third-party distributors, consultants and other business partners and subject ZAIS to regulatory sanctions. Damage to ZAIS’s brands or reputation would negatively impact ZAIS’s standing in the industry and result in loss of business in both the short term and the long term.

A significant portion of ZAIS’s assets under management is or may be derived from a small number of clients, the loss of which could significantly reduce ZAIS’s management fees and have a material adverse effect on ZAIS’s results of operations.

Certain of ZAIS’s strategies are or may derive a significant portion of their total assets under management from assets of a single client or a small number of clients. As of June 30, 2014, 2 investors accounted for approximately 25% of ZAIS’s assets under management and ZAIS’s 10 largest investors accounted for approximately 51% of ZAIS’s assets under management. If any such clients withdraw all or a portion of their assets under management, ZAIS’s business would be significantly affected, which would negatively impact ZAIS’s management fees and could have a material adverse effect on ZAIS’s results of operations and financial condition.

ZAIS’s failure to comply with investment guidelines set by its clients and limitations imposed by applicable law could result in damage awards against ZAIS and a loss of ZAIS’s assets under management, either of which could adversely affect ZAIS’s results of operations or financial condition.

Certain clients who retain ZAIS to manage assets on their behalf specify guidelines regarding investment allocation and strategy that it is required to follow in managing their portfolios. ZAIS’s failure to comply with any of these guidelines and other limitations could result in losses to clients which, depending on the circumstances, could result in ZAIS’s being obligated to make clients whole for such losses. If ZAIS believed that the circumstances did not justify a reimbursement, or clients believed the reimbursement it offered was insufficient, they could seek to recover damages from ZAIS, withdraw assets from ZAIS’s funds or terminate their investment advisory agreement with ZAIS. Any of these events could harm ZAIS’s reputation and adversely affect ZAIS’s business.

ZAIS’s expenses are subject to fluctuations that could materially impact ZAIS’s results of operations.

ZAIS’s results of operations depend on the level of ZAIS’s expenses, which can vary from period to period. ZAIS and its affiliates have certain fixed expenses that they incur as going concerns, and some of those expenses are not subject to adjustment. If ZAIS’s revenues decrease, without a corresponding decrease in expenses, ZAIS’s results of operations would be negatively impacted. While ZAIS attempts to project expense levels in advance, there is no guarantee that an unforeseen expense will not arise or that ZAIS will be able to adjust its variable expenses quickly enough to match a declining asset base. Consequently, either event could have either a temporary or long-term negative impact on ZAIS’s results of operations.

ZAIS may be subject to litigation risks and may face liabilities and damage to ZAIS’s professional reputation as a result.

In recent years, the volume of claims and amount of damages claimed in litigation and regulatory proceedings against investment managers have been increasing. ZAIS makes investment decisions on behalf of investors in ZAIS’s funds that could result in substantial losses. This may subject ZAIS to legal liabilities or actions alleging, among other things, negligence, intentional misconduct, breach of fiduciary duty or breach of contract. Further, ZAIS may be subject to third-party litigation arising from allegations that ZAIS improperly exercised control or influence over investments. In addition, ZAIS and its affiliates that are the investment managers and general partners of ZAIS, ZAIS’s funds and those of ZAIS’s employees who are ZAIS’s, ZAIS’s subsidiaries’ or the funds’ officers and directors are each exposed to the risks of litigation specific to the funds’ investment activities and, in the case where the funds that ZAIS or its affiliates manage are public companies, to the risk of shareholder litigation by the public companies’ shareholders. Moreover, ZAIS is exposed to risks of litigation or investigation by investors or regulators alleging ZAIS’s having engaged, or ZAIS’s funds having engaged, in transactions that presented conflicts of interest that were not properly addressed.

Legal liability or the commencement of legal actions against ZAIS could have a material adverse effect on ZAIS’s businesses, financial condition or results of operations or cause reputational harm to us, which could harm ZAIS’s businesses. ZAIS depends to a large extent on ZAIS’s business relationships and ZAIS’s reputation for integrity and high-caliber professional services to attract and retain investors and to pursue investment opportunities for ZAIS’s funds. As a result, allegations by private litigants or regulators of improper conduct by ZAIS, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, ZAIS’s investment activities or the investment industry in general, whether or not valid, may harm ZAIS’s reputation, which may be damaging to ZAIS’s businesses.

The cost of insuring ZAIS’s business is significant and may increase.

ZAIS’s insurance costs are significant and can fluctuate substantially from year to year. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. As ZAIS renews insurance coverage, it may be subject to additional costs caused by premium increases, higher deductibles, co-insurance liability, changes in the size of ZAIS’s business or nature of ZAIS’s operations, litigation or acquisitions or dispositions. ZAIS may also obtain additional forms, and increased levels of, coverage resulting from being a part of a public company which may involve materially increased costs.

In addition, ZAIS may obtain additional liability insurance for ZAIS’s directors and officers. There have been historical periods in which directors' and officers' liability insurance and errors and omissions insurance have been available only with limited coverage amounts, less favorable terms or at prohibitive cost, and these conditions could recur.

Risks Related to ZAIS’s Funds and Managed Accounts

Dependence on leverage by certain of ZAIS’s funds subjects them to potential volatility and contractions in the debt financing markets and could adversely affect ZAIS’s ability to achieve attractive rates of return on those investments.

Certain of ZAIS’s funds use leverage, and ZAIS’s ability to achieve attractive rates of return on investments in those funds will depend on ZAIS’s ability to access sufficient sources of indebtedness at attractive rates. ZAIS’s funds may choose to use leverage as part of their respective investment programs. As of June 30, 2014, ZAIS served as investment manager to 4 funds utilizing various degrees of leverage. These funds had combined assets under management of $1.3 billion. The weighted average leverage ratio of these funds is approximately 1.43 times, with one fund accounting for a majority of the leverage employed. The use of leverage poses a significant degree of risk and enhances the possibility of a significant loss to investors. A fund may borrow money from time to time to make investments or may enter into derivative transactions that have embedded leverage. The interest expense and other costs incurred in connection with such borrowing or embedded leverage may not be recovered by returns on such investments and may be lost, and the timing and magnitude of such losses may be accelerated or exacerbated, in the event of a decline in the market value of such investments. Gains realized with borrowed funds may cause the fund’s net asset value to increase at a faster rate than would be the case without borrowings. However, if investment results fail to cover the cost of borrowings, the fund’s net asset value could also decrease faster than if there had been no borrowings. An increase in interest rates could also decrease the value of fixed-rate debt investments that ZAIS’s funds make. Any of the foregoing circumstances could have a material adverse effect on ZAIS’s business, results of operations and financial condition.

If ZAIS’s funds or the issuers or companies in which ZAIS’s funds invest raise capital in the structured credit, leveraged loan or high yield bond markets, the results of their operations may suffer if such markets experience dislocations, contractions or volatility. Any such events could adversely impact the availability of credit to businesses generally and could lead to an overall weakening of the U.S. and global economies. Any economic downturn could adversely affect the financial resources of ZAIS’s funds and their investments (in particular those investments that depend on credit from third parties or that otherwise participate in the credit markets) and their ability to make principal and interest payments on, or refinance, outstanding debt when due. Moreover, these events could affect the terms of available debt financing with, for example, higher rates, higher equity requirements or more restrictive covenants.

The absence of available sources of sufficient debt financing for extended periods of time or an increase in either the general levels of interest rates or in the risk spread demanded by sources of indebtedness would make it more expensive to finance those investments. Certain investments may also be financed through borrowings on fund-level debt facilities, which may or may not be available for a refinancing at the end of their respective terms. In addition, the interest payments on the indebtedness used to finance ZAIS’s funds’ investments are generally deductible expenses for applicable income tax purposes, but may be subject to limitations with respect to timing or amount under applicable tax law and policy. Any change in such tax law or policy to eliminate or substantially limit the availability of these income tax deductions may reduce the after-tax rates of return on the affected investments for certain investors, which may have an adverse impact on ZAIS’s businesses and financial results.

If the markets make it difficult or impossible to refinance debt that is maturing in the near term, some of ZAIS’s investee companies may be unable to repay such debt at maturity and may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection. Any of the foregoing circumstances could have a material adverse effect on ZAIS’s business, results of operations and financial condition.

Some of ZAIS’s funds may invest in companies that are highly leveraged, which may increase the risk of loss associated with those investments.

Some of ZAIS’s funds may invest in companies whose capital structures involve significant leverage. For example, in many non-distressed leveraged loan investments, indebtedness may be as much as 75% or more of an investee company’s total debt and equity capitalization, including debt that may be incurred in connection with the investment, whether incurred at or above the investment-level entity. In distressed situations, indebtedness may exceed 100% or more of an investee company’s capitalization. Additionally, while ZAIS’ funds generally purchase senior positions in the aforementioned companies, the debt positions acquired by ZAIS’s funds may be the most junior in what could be a complex capital structure, and thus subject ZAIS to the greatest risk of loss.

Investments in highly leveraged entities are also inherently more sensitive to declines in revenues, increases in expenses and interest rates and adverse economic, market and industry developments.

Furthermore, incurring a significant amount of indebtedness by an entity could, among other things:

A substantial portion of ZAIS’s investments may be recorded at fair value as determined in good faith and, as a result, there may be uncertainty regarding the value of ZAIS’s funds’ investments.

The debt and equity instruments in which ZAIS’s funds invest for which market quotations are not readily available will be valued at fair value as determined in good faith by ZAIS. Most, if not all, of ZAIS’s fund’s investments (other than cash and cash equivalents) are classified as Level 3 under Accounting Standards Codification Topic 820—Fair Value Measurements and Disclosures. This means that the valuation of assets of ZAIS’s funds will be based on unobservable inputs and assumptions about how market participants would price the asset or liability in question. ZAIS expects that inputs into the determination of fair value of ZAIS’s funds’ investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing or quotes accompanied by disclaimers materially reduces the reliability of such information.

The types of factors that ZAIS may take into account in determining the fair value of a fund’s investments generally include broker quotes (if available), market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets, the financial condition of issuers, recent trading activity, and other relevant factors. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, ZAIS’s determinations of fair value may differ materially from the values that would have been used if a ready market for these debt and equity instruments existed.

Because there is significant uncertainty in the valuation of, or in the stability of the value of illiquid investments, the fair values of such investments as reflected in a fund’s net asset value do not necessarily reflect the prices that would actually be obtained by ZAIS on behalf of the fund when such investments are sold. ZAIS’s funds’ net asset value could be adversely affected if determinations regarding the fair value of such fund’s investments were materially higher than the values that such fund ultimately realize upon the disposal of such loans and securities. Realizations at values significantly lower than the values at which investments have been reflected in fund net asset values would result in losses for the applicable fund, a decline in asset management fees and the loss of potential incentive income. Also, a situation where asset values turn out to be materially different than values reflected in fund net asset values will cause investors to lose confidence in ZAIS which would, in turn, result in redemptions from ZAIS’s funds or difficulties in raising additional funds.

ZAIS’s funds may face risks relating to undiversified investments.

While diversification within the asset class in which a ZAIS fund invests is generally an objective of ZAIS’s funds, there can be no assurance as to the degree of diversification, if any, that will be achieved in any fund. Difficult market conditions or slowdowns affecting a particular asset class, geographic region or other category of investment could have a significant adverse impact on a fund if its investments are concentrated in that area, which would result in lower investment returns. This lack of diversification may expose a fund to losses disproportionate to economic conditions or market declines in general if there are disproportionately greater adverse movements in the particular investments. If a fund holds investments concentrated in a particular issuer, security, asset class or geographic region, such fund may be more susceptible than a more widely diversified investment portfolio to the negative consequences of a single corporate, economic, political or regulatory event. Accordingly, a lack of diversification on the part of a fund could adversely affect a fund’s performance and, as a result, ZAIS’s results of operations and financial condition.

Many of ZAIS’s funds invest in relatively high-risk, illiquid assets that often have significantly leveraged capital structures, and ZAIS may fail to realize any profits from these investments for a considerable period of time, lose some or all of the principal amount it invests in these investments or may not be able to liquidate these investments at a desired price.

ZAIS’s funds may make investments or hold trading positions in markets that are volatile and which may be illiquid. Timely divestiture or sale of trading positions can be impaired by decreased trading volume, increased price volatility, concentrated trading positions, limitations on the ability to transfer positions in highly specialized or structured transactions to which ZAIS may be a party, limits imposed by exchanges or other regulatory organizations, market disruptions and changes in industry and government regulations. When a fund holds a security or position, it is vulnerable to price and value fluctuations and may experience losses if the value of the position decreases and the fund is unable to timely sell, hedge or transfer the position.

In particular, with respect to futures contracts, it may be difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. Limits imposed by futures exchanges or other regulatory organizations, such as accountability levels, position limits and price fluctuation limits, may contribute to a lack of liquidity with respect to certain investments. In addition, over-the-counter contracts and cleared swaps may be illiquid because they are contracts between two parties and generally may not be transferred by one party to a third party without the counterparty’s consent. Conversely, a counterparty may give its consent, but a fund still may not be able to transfer an over-the-counter contract to a third party due to concerns regarding the counterparty’s credit risk.

Therefore, it may be impossible or costly for ZAIS’s funds to liquidate positions rapidly, particularly if the relevant market is moving against a position or in the event of trading halts or daily price movement limits on the market or otherwise. Alternatively, it may not be possible in certain circumstances for a position to be purchased or sold promptly, particularly if there is insufficient trading activity in the relevant market or otherwise.

Investments by ZAIS’s investment funds may rank junior to investments made by others.

The securities in which ZAIS’s funds invest may be subordinate to other of the issuer’s securities that rank senior to them. By their terms, these senior securities may provide that their holders are entitled to receive payments of interest or principal on or before the dates on which payments are to be made to the securities held by ZAIS’s funds. Also, in the event of a default or other credit event including, but not limited to, liquidation, dissolution, reorganization or bankruptcy, holders of securities ranking senior to ZAIS’s investment may typically be entitled to receive payment in full before distributions could be made for ZAIS’s investment. After repaying senior security holders, the issuer of the securities held by ZAIS’s funds may not have any remaining assets to use for repaying amounts owed to the securities held by ZAIS’s funds. To the extent that any assets remain, holders of securities that rank equally with those securities held by ZAIS’s funds would be entitled to share on an equal and ratable basis in distributions that are made out of those assets. Also, during periods of financial distress or following an insolvency, the ability of ZAIS’s funds to influence an issuer’s affairs and to take actions to protect their investments may be substantially less than that of the senior security holders.

Third-party investors in ZAIS’s private funds may not satisfy their contractual obligation to fund capital calls when requested, which could adversely affect a fund’s operations and performance.

Historically, certain of ZAIS’s private equity style funds have required investors to make capital commitments that ZAIS is entitled to call from those investors at any time during prescribed periods. ZAIS has historically depended on investors fulfilling and honoring their commitments when it calls capital from them in connection with making investments and otherwise paying their obligations when due. Any investor that did not fund a capital call would be subject to several possible penalties, including having a meaningful amount of its existing investment forfeited in that fund. However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund and if an investor has invested little or no capital, for instance early in the life of the fund, then the forfeiture penalty may not be as meaningful. Investors may also negotiate for lesser or reduced penalties at the outset of the fund, thereby limiting ZAIS’s ability to enforce the funding of a capital call. Third-party investors in private funds often use distributions from prior investments to meet future capital calls. In cases where valuations of existing investments fall and the pace of distributions slows, investors may be unable to make new commitments to third-party managed investment funds such as those advised by us. The failure of investors to honor a significant amount of capital calls for any particular fund or funds could have a material adverse effect on the operation and performance of those funds and, in turn, ZAIS’s business.

ZAIS’s funds may be forced to dispose of investments at a disadvantageous time.

ZAIS’s funds may make investments that they do not advantageously dispose of prior to the date the applicable fund is dissolved or that it may be forced to dispose of at an inopportune time to meet an investor redemption request. Although ZAIS generally expects that investments will be disposed of prior to dissolution or be suitable for in-kind distribution at dissolution of a fund, ZAIS’s funds may have to sell, distribute or otherwise dispose of investments at a disadvantageous time as a result of dissolution of a fund. This would result in a lower than expected return on the investments and, perhaps, on the fund itself.

Hedging strategies may adversely affect the returns on ZAIS’s funds’ investments.

When managing its exposure to market risks, ZAIS may (on its own behalf or on behalf of ZAIS’s funds) from time to time use forward contracts, options, swaps (including total return swaps), caps, collars, floors, foreign currency forward contracts, currency swap agreements, currency option contracts or other instruments. The success of any hedging or other derivative transactions generally will depend on the degree of correlation between price movements of a derivative instrument and the position being hedged, the creditworthiness of the counterparty, the costs of the hedging transaction and other factors. Because ZAIS may enter into a transaction to hedge its or a fund’s exposure to market risks, while the transaction may reduce the risks of losses with respect to adverse movements in such market factors, the transaction may also limit the opportunity for gain if the value of the hedged positions increases. There can be no assurance that any hedging transaction will successfully hedge the risks associated with hedged positions or that it will not result in poorer overall investment performance than if it had not been executed.

While such hedging arrangements may reduce certain risks, such arrangements themselves may entail certain other risks. These arrangements may require the posting of cash or other collateral at a time when ZAIS or a fund has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value. Moreover, these hedging arrangements may generate significant transaction costs, including potential tax costs, that may reduce the anticipated returns on an investment. Finally, the U.S. Commodity Futures Trading Commission (“CFTC”) has indicated that it may soon issue a proposal for certain foreign exchange products to be subject to mandatory clearing, which could increase the costs of entering into currency hedges.

ZAIS’s failure to appropriately address conflicts of interest could damage ZAIS’s reputation and adversely affect ZAIS’s businesses.

As ZAIS expands the number and scope of ZAIS’s businesses, it will increasingly confront potential conflicts of interest relating to its investment activities on behalf of itself and its funds. ZAIS serves as the investment adviser to a number of existing funds, and may, in the future, establish new funds that will compete with one another and with ZAIS. Certain of ZAIS’s funds may have overlapping investment objectives and strategies, including funds that have different fee structures, and potential conflicts may arise with respect to ZAIS’s decisions regarding how to allocate investment opportunities among those funds and between itself and its funds. For example, a decision to receive material non-public information about a company while pursuing an investment opportunity for a particular fund gives rise to a potential conflict of interest when it results in ZAIS’s having to restrict the ability of other funds to take any action with respect to such company.

There are also additional conflicts of interest that ZAIS encounters in managing its funds. ZAIS may or may not cause its funds to purchase different classes of securities that may have interests that conflict with the interests owned by it or a fund that it manages. ZAIS or the funds that it manages may hold similar positions or the same security, yet ZAIS or a fund it manages may liquidate its position as circumstances warrant, potentially affecting the liquidity or value of the securities held by another fund ZAIS manages. ZAIS or funds managed by ZAIS may take conflicting positions with that of another ZAIS managed fund. For example, ZAIS or one of ZAIS’s funds may take a long position while another fund may take a short position in the same security. Additional conflicts may arise in circumstances where a fund that ZAIS manages purchases or sells assets to another fund that ZAIS manages. Further, ZAIS may liquidate investments at different times than the funds it manages due to, among other things, differences in investment strategies or fund durations.

In addition to the various conflicts set forth above, conflicts of interest may exist in the valuation of ZAIS’s investments and regarding decisions about the allocation of specific investment opportunities among ZAIS and ZAIS’s funds and the allocation of fees and costs among ZAIS and ZAIS’s funds. Though ZAIS believes it has appropriate means to resolve these conflicts, ZAIS’s judgment on any particular issue could be challenged. If ZAIS fails to appropriately address any such conflicts, it could negatively impact ZAIS’s reputation and ability to raise additional funds or maintain existing clients or result in potential litigation against us.

Many of ZAIS’s funds invest in structured credit securities which are subject to certain types of risks.

Many of ZAIS’s funds invest in structured credits investments including residential mortgage backed securities (“RMBS”), CLOs, CDOs, re-securitizations, CMBS and other types of structured credit instruments. These investments typically are subject to, among others, credit, liquidity, market, operations, fraud and structural risks. The market value of these investments will generally fluctuate with, among other things, the financial condition of the obligors or the issuers of these investments, general economic conditions, certain financial markets, geopolitical events, developments or trends in particular industries and changes in prevailing interest rates. As the value of these investments are impacted, the net asset value and profitability of ZAIS’s funds will likely be affected, thereby harming ZAIS’s businesses, results of operation and financial condition. In addition, ZAIS’s funds face certain risks and uncertainties that could also lead to the impairment of the value of securities held by such funds, and on the returns achieved by us, including:

Certain of ZAIS’s funds invest in RMBS and residential mortgage loans that are subject to particular risks.

ZAIS’s funds invest in residential mortgage loans and pools of residential mortgage loans called RMBS. Holders of mortgage backed securities or the residential mortgage loans that underlie generally bear certain risks including credit, market, interest rate, structural and legal risks. The rate of defaults, losses and prepayments on residential mortgage loans will be affected by a number of factors, including general economic conditions, unemployment rate, the level of interest rates, the availability of mortgage credit, local conditions in the geographic area where the related mortgaged property is located, the terms of the loan, the borrower’s equity in the mortgaged property and the financial circumstances of the borrower. Further, a region’s economic condition and housing market may be directly, or indirectly, adversely affected by natural disasters or civil disturbances such as earthquakes, hurricanes, fires, floods, eruptions or riots. The economic impact of any of these types of events may also be felt in areas beyond the region immediately affected by the disaster or disturbance. Also the economic downturn that started in 2007-2008 demonstrated that there may be significant correlation among certain economic factors across a broad geographic and economic area, which may diminish the perceived benefit from geographic and other diversification. If a residential mortgage loan is in default, foreclosure of such residential mortgage loan may be a lengthy and difficult process, and may involve significant expenses. Furthermore, the market for defaulted residential mortgage loans or foreclosed properties may be very limited. Any such defaults and resulting expenses may result in losses to RMBS which may impact ZAIS’s funds’ investment in such RMBS. Additionally, investments in RMBS are subject to certain additional risks, including:

Certain of ZAIS’s funds invest in commercial related mortgage assets that are subject to particular risks.

ZAIS’s funds invest in a variety of assets backed by commercial mortgages including CMBS, commercial real estate mortgages and mezzanine loans and direct commercial property ownership. Commercial mortgages carry certain risks that are discussed below in “—ZAIS may originate and invest is commercial mortgages, each carrying certain risks.” Further, commercial mortgage lenders and investors bear many of the same economic risks as holders of residential mortagages, including economic, inflation, interest rate, borrower default and natural disasters and the potential for these risks to experienced across broad geographic and economic areas. In addition, investments by ZAIS’s funds in these commercial real estate related assets are subject to risks, including:

Certain of ZAIS’s funds invest in certain other structured finance securities that are subject to particular risks.

ZAIS’s funds invest in structured finance securities, including CDOs, stripped mortgage backed securities, synthetic risk transfer securities, home equity loan backed securities, securities backed by manufactured housing loans and other asset backed securities that are subject to particular risks, including:

Certain of ZAIS’s funds invest in leveraged loans that are subject to particular risks.

ZAIS’s funds invest in leveraged loans, either directly, or through securities backed by leveraged loans, including CLOs. In addition, ZAIS may invest in a fund that invests in the equity tranches of CLO transactions for which ZAIS serves as the investment manager, which would provide exposure to leveraged loans. Further, the recently adopted European and United States risk retention requirements will require ZAIS to invest in a percentage of the debt or equity in the CLOs (and therefore leveraged loans) it manages. Leveraged loans may be risky and investors in these types of investments could lose some or all of their investments. Leveraged loans are subject to certain risks, including:

Additionally, leveraged loans may be subject to additional risks, including:

ZAIS’s funds’ investment in credit default swaps and other synthetic securities carry certain risks.

ZAIS’s funds invest in credit default swaps (“CDS”) and other synthetic securities that carry certain risks. ZAIS’s funds may enter into CDS either as a “buyer” or a “seller.” The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. If a credit event occurs, the seller typically is obligated to pay the contingent payment to the buyer, which is typically the full notional value of the reference obligation. The contingent payment may be payment of the face amount of the obligation in return for physical delivery of the reference obligation or cash settlement of the difference between the face amount of the obligation and its market value. Thus, if a credit event occurs and one of ZAIS’s funds is a buyer of a CDS, such fund would expect to receive the full notional value of the underlying reference obligation. If a fund is a buyer of a CDS, and if no credit event occurs, that fund will have made fixed payments and received nothing, and thus may incur losses. If one of ZAIS’s funds is a seller of a CDS and a credit event occurs, that fund may incur significant losses.

In addition to general market risks, credit default swaps may be subject to liquidity risk and credit risk of the applicable counterparty. While certain index CDS are now subject to mandatory clearing and execution on a swap execution facility, certain other CDS (including single name CDS) continue to be entered into a bilateral privately-negotiated basis. The buyer of such bilateral CDS may also incur a loss if the seller fails to perform on its obligation should a credit event occur. In certain circumstances, the buyer can receive the notional value of a credit default swap only by delivering a physical security to the seller, and is at risk if deliverable securities are unavailable or illiquid.

Because the contract for certain derivative transactions are individually negotiated with a specific counterparty, there exists the risk that the parties may interpret contractual terms differently when a fund seeks to enforce its contractual rights. If that occurs, the cost and unpredictability of the legal proceedings required for a fund to enforce contractual rights may lead the fund to decide not to pursue its claim against the counterparty. In addition, the literal terms of a contract may be applied in ways that are at odds with the investment thesis behind the decision to enter the contract.

ZAIS’s funds may also invest in synthetic securities, the reference obligations of which are one or more financial assets (including CDS). Investments in such types of assets through the purchase of synthetic securities present risks in addition to those resulting from direct purchases of such reference obligations. Under a synthetic security, the owner of the synthetic security will usually have a contractual relationship only with the counterparty of such synthetic security, and not the reference obligor on the reference obligation. The owner generally will have no right directly to enforce compliance by the reference obligor with the terms of the reference obligation or any rights of set-off against the reference obligor, nor will the owner generally have any voting or other consensual rights of ownership with respect to the reference obligation. ZAIS’s funds that own such synthetic securities will not directly benefit from any collateral supporting the reference obligation and will not have the benefit of the remedies that would normally be available to a holder of a reference obligation. In addition, in the event of the insolvency of the issuer of such a synthetic security, the holder of such security may be treated as a general creditor of such issuer, and generally will not have any claim of title with respect to the reference obligation. Consequently, ZAIS’s funds that own these synthetic securities would be subject to the credit risk of such counterparty as well as that of the reference obligor. As a result, concentrations of synthetic securities acquired from any one issuer will subject ZAIS’s funds to an additional degree of risk with respect to defaults by such issuer as well as by the reference obligor.

Through their investment in synthetic securities, ZAIS’s funds will be exposed to the risks related to the reference obligations of such synthetic securities. The market value of a reference obligation will generally fluctuate with, among other things, changes in prevailing interest rates, general economic conditions, the condition of certain financial markets, international political events, developments or trends in any particular industry, the financial condition of the reference obligor (and the obligors of the securitized assets underlying a reference obligation that is collateral security) and the terms of the reference obligation. Adverse changes in the financial condition of reference obligors (and the obligors of the securitized assets underlying an asset backed security), in general economic conditions or in both may result in a decline in the market value of a reference obligation. In addition, future periods of uncertainty in the United States economy and the economies of other countries in which reference obligors (and the obligors of the securitized assets underlying an asset backed security) are domiciled and the possibility of increased volatility and default rates may also adversely affect the price and liquidity of reference obligations.

Many reference obligations will have no, or only a limited, trading market. Trading in fixed income securities in general, including asset backed securities and related derivatives, often takes place primarily in over-the-counter markets consisting of groups of dealer firms that are typically major securities firms. Because the market for certain asset backed securities and related derivatives is a dealer market, rather than an auction market, no single obtainable price for a given instrument prevails at any given time. Not all dealers maintain markets in these securities at all times. The illiquidity of reference obligations will restrict ZAIS’s ability to take advantage of market opportunities. Illiquid reference obligations may trade at a discount from comparable, more liquid investments. In addition, reference obligations may include privately placed securities that may or may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale, and even if such privately placed securities are transferable, the value of such reference obligations could be less than what may be considered the fair value of such securities.

Certain synthetic securities may consist of CDS, giving ZAIS’s funds credit exposure to a portfolio of reference obligations, some of which may be rated below-investment grade at the time they are included in a synthetic security. Ratings on such reference obligations may be downgraded or withdrawn after they are included in the synthetic security.

ZAIS’s funds are subject to numerous additional risks.

ZAIS’s funds are subject to numerous additional risks which could negatively impact each fund and ZAIS’ business, including the following:

ZAIS depends on its senior management team, senior investment professionals and other key personnel, and its ability to retain them and attract additional qualified personnel is critical to its success and growth prospects.