CAFND Cachet Financial Solutions, Inc.

PROPOSAL 1-APPROVAL OF AMENDMENT TO OUR CERTIFICATE OF INCORPORATION

TO EFFECT A REVERSE STOCK SPLIT

General

Our Board is hereby soliciting stockholder authorization to amend our Certificate of Incorporation in the form set forth in Appendix A to this Proxy Statement (the “Charter Amendment”) to effect a reverse split of our issued and outstanding shares of common stock (the “Reverse Stock Split”) upon a determination by our Board that such amendment is necessary and appropriate to obtain an original listing of the common stock on The Nasdaq Capital Market, and such Reverse Stock Split shall be at a ratio of between 1-for-1.01 and 1-for-4, inclusive, which ratio will be selected at the sole discretion of our Board at any number in the above range, with any fractional shares that would otherwise be issuable as a result of the Reverse Stock Split being rounded up to the nearest whole share. A vote “ FOR ” the Reverse Stock Split will constitute approval of the Charter Amendment providing for the combination of between 1.01 and four shares of common stock, inclusive, as determined in the sole discretion of our Board, into one (1) share of common stock. If our stockholders approve this proposal, our Board will have the authority, but not the obligation, in its sole discretion and without further action on the part of our stockholders, to select the Reverse Stock Split ratio in the above range and implement the Reverse Stock Split by filing the Reverse Stock Split Amendment with the Secretary of State of the State of Delaware at any time after the stockholder approval of the Reverse Stock Split Amendment and before the second anniversary of the date of the stockholder approval. Our Board reserves the right to abandon the Reverse Stock Split at any time prior to filing the Reverse Stock Split Amendment if it determines, in its sole discretion, that this proposal is no longer in the best interests of the Company and its stockholders. Except for any changes as a result of the treatment of fractional shares, each stockholder will hold the same percentage of common stock outstanding immediately following the Reverse Stock Split as such stockholder held immediately prior to the Reverse Stock Split.

Purpose of the Reverse Stock Split

Our Board believes that the Reverse Stock Split may be desirable for a number of reasons. First, our Board believes that the Reverse Stock Split may better enable us to list our common stock on a national exchange. Second, our Board believes that the Reverse Stock Split could improve the marketability and liquidity of our common stock while we continue to progress towards achieving our business objectives.

Our common stock is currently quoted on the Over-the-Counter Bulletin Board (“OTC Bulletin Board”). Our Board believes that it is in the best interests of the Company and its stockholders to list our common stock on a national exchange. Alternative markets like the OTC Bulletin Board or the “pink sheets” maintained by the Pink OTC Markets, Inc. are generally considered to be less efficient and not as widely followed as other exchanges like those operated by The Nasdaq Stock Market (“NASDAQ”) or NYSE AMEX.

In order for us to list our common stock on NASDAQ, we must satisfy certain listing standards, one of which requires a minimum bid price of  $4.00 per share. In addition, because our Company was formed by a reverse merger as defined by NASDAQ and less than four fiscal years have passed since that transaction, we are required to meet additional listing standards under NASDAQ Rule 5110(c). Specifically, among other requirements, unless an exemption or relief can be obtained from NASDAQ, we must maintain a closing price of $4 per share or higher for a sustained period of time, but in no event for less than 30 of the most recent 60 trading days (i) immediately prior to the filing of an initial listing application with NASDAQ in order to be eligible to submit such application for initial listing and (ii) prior to approval of the Company’s listing application by NASDAQ.

On June 2, 2016, because the closing price for our common stock as reported on the OTC Bulletin Board was $0.36 per share as of May 31, 2016, our Board approved and recommended to our stockholders for their approval a proposal to amend our Amended and Restated Certificate of Incorporation to effect a reverse split at a ratio of between 1-for-5 and 1-for-25, with the exact reverse split ratio to be set within the range as determined by our Board in its sole discretion. The reverse split of our outstanding shares of common stock was approved by our stockholders by written consent in June 2016. On July 13, 2016, our Board fixed the reverse split ratio at 1-for-15, and we implemented the 1-for-15 reverse split on July 27, 2016. As of January 17, 2017, the closing price for our common stock as reported on the OTC Bulletin Board was $3.28 per share.

Our Board believes that the Reverse Stock Split may help us satisfy the minimum bid price listing standards of a national exchange. However, the effect of the Reverse Stock Split upon the trading price of our common stock cannot be predicted with any certainty, and the history of similar reverse stock splits for companies in like circumstances is varied. It is possible that the per share price of our common stock after the Reverse Stock Split will not rise in proportion to the reduction in the number of shares of our common stock outstanding resulting from the Reverse Stock Split, and even if it does rise in proportion there can be no assurance that the trading price per post-Reverse Stock Split share will remain at that level for a sustained period of time. The trading price of our common stock may be based also on other factors that may be unrelated to the number of shares outstanding, including investors’ perceptions of our future performance. Notwithstanding the foregoing, our ability to list our stock on a national exchange is subject to numerous requirements other than a minimum share price, including equity and market capitalization requirements and certain corporate governance requirements, such as having a majority of independent board members. Accordingly, even if our share price were to rise as a result of the Reverse Stock Split, there can be no assurance that we would be able to list our stock on a national exchange such as NASDAQ.

Our Board also believes that any increase in the trading price of our common stock as a result of implementing the Reverse Stock Split may improve the marketability and liquidity of our common stock, including facilitating efforts to accomplish future offerings of our common stock. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of our common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. It should be noted that the liquidity of our common stock may be adversely affected by the proposed Reverse Stock Split given the reduced number of shares that would be outstanding after the Reverse Stock Split. Our Board believes, however, that any higher trading price may reduce, to some extent, the negative effects on the liquidity and marketability of our common stock that may result from some of the policies and practices of institutional investors and brokerage houses described above.

Board Discretion to Implement Reverse Stock Split

The Reverse Stock Split will be effected, if at all, only upon a determination by our Board that the Reverse Stock Split (with an exchange ratio determined by our Board of Directors as described above) is in the best interests of the Company and its stockholders. The determination by our Board as to whether the Reverse Stock Split will be effected, if at all, will be based upon certain factors, including the prospect of being able to meet the listing requirements for a national securities exchange like NASDAQ in the near future, existing and expected marketability and liquidity of our common stock, prevailing market conditions and the likely effect on the trading price of our common stock. If our Board determines to effect the Reverse Stock Split, our Board will consider certain factors in selecting the specific exchange ratio, including the overall market conditions at the time and the recent trading history of our common stock. However, there can be no assurance that any Reverse Stock Split that our Board may elect to effect will have the desired consequences.

Notwithstanding approval of the Reverse Stock Split by the stockholders, our Board may, in its sole discretion, abandon the proposed amendment and determine not to effect the Reverse Stock Split prior to the second anniversary of the date such action is approved by the stockholders. If our Board fails to implement the Reverse Stock Split prior to the second anniversary of the date such action is approved by the stockholders, stockholder approval again would be required prior to implementing the Reverse Stock Split thereafter.

Certain Risk Factors Associated with the Reverse Stock Split

There can be no assurance that the total market capitalization of our common stock (the aggregate value of all our common stock outstanding at the then trading price) after the proposed Reverse Stock Split will be equal to or greater than the total market capitalization before the proposed Reverse Stock Split or that the per share trading price of our common stock following the Reverse Stock Split will either equal or exceed the per share trading price prior to the Reverse Stock Split multiplied by the Reverse Stock Split ratio.

There can be no assurance that the trading price per post-split share of the Company’s common stock will remain unchanged or increase in proportion to the reduction in the number of pre-split shares of the Company’s common stock outstanding before the Reverse Stock Split. For example, based on the trading price of the Company’s common stock on January 17, 2017 of $3.28 per share, if our Board decided to implement the Reverse Stock Split and selects a Reverse Stock Split ratio of one-for-two there can be no assurance that the post-split trading price of our common stock would be $6.56 per share or greater.

Accordingly, the total market capitalization of our common stock after the proposed Reverse Stock Split may be lower than the total market capitalization before the proposed Reverse Stock Split and, in the future, the trading price of our common stock following the Reverse Stock Split may not exceed or remain higher than the trading price multiplied by the Reverse Stock Split ratio.

If the Reverse Stock Split is effected, the resulting per-share stock price of our common stock may not attract institutional investors or investment funds and may not satisfy the investing guidelines of such investors and, consequently, the trading liquidity of our common stock may not improve.

While our Board believes that a higher stock price may help generate investor interest, there can be no assurance that the Reverse Stock Split will result in a per-share price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of the Company’s common stock may not necessarily improve.

A decline in the trading price of the Company’s common stock after the Reverse Stock Split may result in a greater percentage decline than would occur in the absence of a reverse stock split, and the liquidity of the Company’s common stock could be adversely affected following such a Reverse Stock Split.

If the Reverse Stock Split is effected and the trading price of the Company’s common stock declines, the percentage decline may be greater than would occur in the absence of a Reverse Stock Split. The trading price of the Company’s common stock will, however, also be based on the Company’s performance and other factors, which are unrelated to the number of shares outstanding. Furthermore, the liquidity of the Company’s common stock could be adversely affected by the reduced number of shares that would be outstanding after the Reverse Stock Split.

Principal Effects of a Reverse Stock Split

Common Stock

Our common stock is currently registered under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, and we are subject to the periodic reporting and other requirements of the Exchange Act. We do not expect the Reverse Stock Split to affect the registration of our common stock under the Exchange Act. Our common stock is currently quoted under the symbol “CAFN” on the OTCQB. The Reverse Stock Split will not be implemented until we receive the requisite approval from FINRA.

After the effective date of the Reverse Stock Split, each stockholder will own fewer shares of our common stock. However, the Reverse Stock Split will generally affect all of our stockholders uniformly and will not affect any stockholder’s percentage ownership interests in us, except to the extent that the Reverse Stock Split results in any of our stockholders receiving a whole share in lieu of a fractional share as described below. Proportionate voting rights and other rights and preferences of the holders of our common stock will not be effected by a Reverse Stock Split other than as a result of the rounding up to issue a whole share in lieu of issuing fractional shares. Further, the number of stockholders of record will not be effected by a Reverse Stock Split.

The Reverse Stock Split may decrease the number of stockholders who hold less than a “round lot,” or 100 shares. This has two disadvantages. First, the rules of NASDAQ require that we have 300 round lot stockholders, respectively, to be listed on such exchange. Second, the transaction costs to stockholders selling “odd lots” are typically higher on a per share basis. Consequently, the Reverse Split could increase the transaction costs to existing stockholders in the event they wish to sell all or a portion of their position.

The Reverse Stock Split would not change the number of authorized shares of our common stock as designated by our Amended and Restated Certificate of Incorporation. Therefore, because the number of issued and outstanding shares of common stock would decrease, the number of shares remaining available for issuance under our authorized pool of common stock would increase from 496,809,597 to 496,841,185 (as of January 17, 2017, assuming a 1:1.01 Reverse Stock Split ratio) or 499,202,399 (as of January 17, 2017, assuming a 1:4 Reverse Stock Split ratio), proportionately to the ratio of the Reverse Stock Split.

These additional shares of common stock would be available for issuance from time to time for corporate purposes such as raising additional capital, acquisitions of companies or assets and sales of stock or securities convertible into or exercisable for common stock. We believe that the availability of the additional shares will provide us with the flexibility to raise the necessary capital meet business needs as they arise and to take advantage of favorable opportunities. If we issue additional shares for any of these purposes, the ownership interest of our current stockholders would be diluted. Although we continually examine potential acquisitions of companies or assets or other favorable opportunities, there are no current plans or arrangements to issue any additional shares of our common stock for such purposes.

These Proposals have been prompted solely by the business considerations discussed in the preceding paragraphs. Nevertheless, the additional shares of our common stock that would become available for issuance following the Reverse Stock Split could also be used by our management to oppose a hostile takeover attempt or delay or prevent changes in control or changes in or removal of management, including transactions that are favored by a majority of our stockholders or in which our stockholders might otherwise receive a premium for their shares over then-current trading prices or benefit in some other manner. For example, without further stockholder approval, our Board could sell shares of common stock in a private transaction to purchasers who would oppose a takeover or favor the current Board. Our Board is not aware of any pending takeover or other transactions that would result in a change in control, and the proposal was not adopted to thwart any such efforts.

The following table depicts the prospective effects of the Reverse Stock Split, as of the Record Date, on the number of shares of our common stock outstanding, the number of shares of our common stock reserved for future issuance and the number of authorized but unissued and unreserved shares of our common stock that would be available for issuance after the Reverse Stock Split. As discussed above, the number of shares of our common stock authorized for issuance under our Amended and Restated Certificate of Incorporation would remain unaffected by the Reverse Stock Split.

(1) Represents the total number of shares of common stock that are outstanding, but without giving effect to any rounding to whole shares in lieu of fractional shares.

(2) Represents the total number of shares of our common stock reserved for issuance pursuant to equity incentive plans assuming passage of Proposal 1 and options issued outside plans. Does not include securities issuable upon conversion of convertible securities described below.

(3) Represents the total number of shares of authorized common stock that will be neither outstanding nor reserved for issuance, but without giving effect to any rounding to whole shares in lieu of fractional shares.

Convertible Debt

As of December 31, 2016, we have $7.1 million outstanding under convertible notes. Immediately following the Reverse Stock Split, convertible notes will be subject to adjustment pursuant to which the shares of common stock to be issued upon full conversion will be combined and reduced into a smaller number of shares (within the stockholder-approved range referred to above) and the conversion price under each note will be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the company) outstanding immediately before the Reverse Stock Split and of which the denominator shall be the number of shares of common stock outstanding immediately after the Reverse Stock Split.

Preferred Stock

As of December 31, 2016, there were 43,530 shares of Series C Convertible Preferred Stock issued and outstanding. Immediately following the Reverse Stock Split, shares of Series C Preferred Stock will be subject to adjustment pursuant to which the shares of common stock to be issued upon full conversion will be combined and reduced into a smaller number of shares (within the stockholder-approved range referred to above) and the conversion price then in effect will be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before the Reverse Stock Split and of which the denominator shall be the number of shares of common stock outstanding immediately after the Reverse Stock Split.

Warrants

As of December 31, 2016, we have outstanding warrants for the purchase of an aggregate of up to 4,343,528 shares of our common stock. Immediately following the Reverse Stock Split, such warrants will be exercisable to purchase approximately an aggregate between 4,300,523 and 1,085,882 shares of our common stock. Any new warrants that are issued prior to the Reverse Stock Split will be subject to customary adjustments regarding the number of shares and the exercise price for any exercise.

Options

As of December 31, 2016 we currently have outstanding options to purchase an aggregate of 337,846 shares of our common stock. Immediately following the Reverse Stock Split, such options will be exercisable to purchase approximately an aggregate of between 334,501 and 84,462 shares of our common stock. The number of shares reserved for issuance under our existing equity incentive plans would be reduced proportionally based on the ratio of the Reverse Stock Split. Any new options that are issued prior to the Reverse Stock Split will be subject to customary adjustments regarding the number of shares and the exercise price for any exercise.

Treatment of Fractional Shares

Our stockholders will not receive fractional post-Reverse Stock Split shares in connection with the Reverse Stock Split. Instead, any fractional shares that would otherwise be issuable as a result of the Reverse Stock Split will be rounded up to the nearest whole share.

Procedure for Effecting Reverse Stock Split; Effective Date

If the stockholders approve the proposal to authorize the Reverse Stock Split and our Board decides to implement the Reverse Stock Split at any time before the second anniversary date of this meeting, we will promptly file a Certificate of Amendment with the Secretary of State of the State of Delaware to amend the existing Amended and Restated Certificate of Incorporation. The Reverse Stock Split will become effective on the date of filing the Certificate of Amendment, which is referred to as the “effective date.” Beginning on the effective date, each certificate representing pre-Reverse Stock Split shares will be deemed for all corporate purposes to evidence ownership of post-Reverse Stock Split shares. The text of the Certificate of Amendment is set forth in Appendix A to this proxy statement. The text of the Certificate of Amendment is subject to modification to include such changes as may be required by the office of the Secretary of State of the State of Delaware and as our Board deems necessary and advisable to effect the Reverse Stock Split, including the applicable ratio for the Reverse Stock Split

No Going-Private Transaction

Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Stock Split, our Board does not intend for the Reverse Stock Split to be the first step in a “going-private transaction” within the meaning of Rule 13e-3 of the Exchange Act. In fact, since all fractional shares of common stock resulting from the Reverse Stock Split will be rounded up to the nearest whole share, there will be no reduction in the number of stockholders of record that could provide the basis for a going-private transaction.

Exchange of Stock Certificates

As of the effective date of the Reverse Stock Split, each certificate representing shares of common stock before the Reverse Stock Split would be deemed, for all corporate purposes, to evidence ownership of the reduced number of shares of common stock resulting from the Reverse Stock Split, except that holders of unexchanged shares would not be entitled to receive any dividends or other distributions payable by the Company after the effective date until they surrender their old stock certificates for exchange. All shares, underlying options and warrants and other securities would also be automatically adjusted on the effective date.

The Company’s transfer agent, Corporate Stock Transfer, Inc., would act as the exchange agent for purposes of implementing the exchange of stock certificates. As soon as practicable after the effective date, stockholders and holders of securities convertible into common stock would be notified of the effectiveness of the Reverse Stock Split. Stockholders of record would receive a letter of transmittal requesting them to surrender their stock certificates for stock certificates reflecting the adjusted number of shares as a result of the Reverse Stock Split. Persons who hold their shares in brokerage accounts or “street name” would not be required to take any further actions to effect the exchange of their certificates. No new certificates would be issued to a stockholder until such stockholder has surrendered the outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Until surrender, each certificate representing shares before the Reverse Stock Split would continue to be valid and would represent the adjusted number of shares based on the exchange ratio of the Reverse Stock Split, rounded up to the nearest whole share. Stockholders should not destroy any stock certificate and should not submit any certificates until they receive a letter of transmittal.

Accounting Matters

The Reverse Stock Split will not affect the par value of a share of our common stock. As a result, as of the Effective Time of the Reverse Stock Split, the stated capital attributable to common stock on our balance sheet will be reduced proportionately based on the Reverse Stock Split ratio (including a retroactive adjustment for prior periods), and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.

No Appraisal Rights

Under the DGCL, stockholders are not entitled to dissenters’ or appraisal rights with respect to the Reverse Stock Split, and we will not independently provide stockholders with any such rights.

Material United States Federal Income Tax Considerations

Any discussion of tax matters set forth in this proxy statement was not intended or written to be used, and cannot be used by you, for the purpose of avoiding tax-related penalties under federal, state or local tax law. Stockholders should seek advice based on their particular circumstances from an independent tax advisor.

The following is a summary of material United States federal income tax consequences of the Reverse Stock Split to stockholders. Except where noted, this summary deals only with our common stock and Series C Preferred Stock that is held as a capital asset for federal income tax purposes.

This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and Treasury regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below.

This summary does not address all aspects of United States federal income taxes that may be applicable to holders of common stock or Series C Preferred Stock and does not deal with non-United States, state, local or other tax considerations that may be relevant to stockholders in light of their particular circumstances. In addition, it does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws (including if you are a dealer in securities or currencies; a financial institution; a regulated investment company; a real estate investment trust; an insurance company; a tax-exempt organization; a person holding shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; a trader in securities that has elected the mark-to-market method of accounting for your securities; a person liable for alternative minimum tax; a person who owns or is deemed to own 10% or more of our voting stock; a person who acquired our common stock pursuant to the exercise of compensatory stock options or the vesting of restricted shares of common stock; a partnership or other pass-through entity for United States federal income tax purposes; a person whose “functional currency” is not the United States dollar; a United States expatriate; a “controlled foreign corporation”; or a “passive foreign investment company”).

We cannot assure you that a change in law will not significantly alter the tax considerations that we describe in this summary. No ruling from the Internal Revenue Service or opinion of counsel will be obtained regarding the federal income tax consequences to stockholders as a result of the Reverse Stock Split.

If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds our common stock and/or Series C Preferred Stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock and/or Series C Preferred Stock, you should consult your tax advisors.

We believe that the Reverse Stock Split, if implemented, would be a tax-free recapitalization under the Code. If the Reverse Stock Split qualifies as a recapitalization under the Code, then, generally, for United States federal income tax purposes, no gain or loss will be recognized by the Company in connection with the Reverse Stock Split, and no gain or loss will be recognized by stockholders upon the exchange of stock in the Reverse Stock Split. The post-split common stock in the hands of a stockholder following the Reverse Stock Split will have an aggregate basis equal to the aggregate basis of the pre-split common stock, as applicable, held by that stockholder immediately prior to the Reverse Stock Split. Similarly, a stockholder’s holding period for the post-split common stock will be the same as the holding period for the pre-split common stock exchanged therefor.

Alternative characterizations of the Reverse Stock Split are possible. For example, while the Reverse Stock Split, if implemented, would generally be treated as a tax-free recapitalization under the Code, stockholders whose fractional shares resulting from the Reverse Stock Split are rounded up to the nearest whole share may recognize gain for United States federal income tax purposes equal to the value of the additional fractional share. Stockholders should consult their own tax advisors regarding alternative characterizations and tax consequences of the Reverse Stock Split for United States federal income tax purposes.

Required Vote of Stockholders

Approval of the Reverse Stock Split requires an affirmative vote by the holders of a majority of the shares of our common stock and Series C Preferred Stock (on an as-converted basis), voting together as one class, on the Record Date who are entitled to vote at the Special Meeting. Abstentions will have the same effect as votes against the proposal. Your broker or nominee has discretionary authority to vote your shares with respect to “routine” proposals but not with respect to “non-routine” proposals. We believe that the Reverse Stock Split is a routine matter and so may be voted on by your broker if you do not submit voting instructions.

If the required votes for this proposal are obtained, then our Board will have the authority to select the Reverse Stock Split ratio in the stated range and authorize the filing of the Reverse Stock Split Amendment in substantially the form attached to this Proxy Statement as Appendix A at any time after the stockholder approval of the Reverse Stock Split and before the second anniversary of the date of the stockholder approval. Our Board reserves the right to abandon the proposed Reverse Stock Split at any time prior to the effectiveness of the filing of the Reverse Stock Split Amendment with the Delaware Secretary of State, notwithstanding approval of the proposed Reverse Stock Split by our stockholders.

Recommendation of the Board of Directors

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “ FOR ” APPROVAL OF THE REVERSE STOCK SPLIT.