Convertibles, preferred and toxic financing
How to Find Selling Shareholders and Placement Agents
Counterparty disclosures in a prospectus or 8-K: how to identify the holder, placement agent and selling shareholders, what each is paid and what each can sell.
Who are the counterparties in a financing?
Every financing has at least two parties besides the company: whoever provides the money, and usually an intermediary who arranges it. SEC filings disclose both, in sections that use fairly standard language once you learn it. There are three roles to recognize:
- The holder or investor: the party that buys the shares, notes or warrants.
- The placement agent or underwriter: the broker-dealer that arranges the sale and is paid a fee.
- The selling shareholder: an existing holder whose shares a registration statement covers so it can resell them.
This guide is about reading those sections accurately. It is about roles and terms. A firm's name next to a deal tells you who signed; the terms tell you what the deal does.
Role one: the holder
In an 8-K or purchase agreement, the investor is introduced once by legal name and then by a defined term ("the Investor", "the Purchaser", "the Holder", "the Lender"). In a 424B5 for a registered direct offering, the investor is often described generically, for example "a single institutional investor", and named only in the exhibits.
What to record for each holder:
| Field | Where it is stated |
|---|---|
| Legal name | Agreement preamble and signature page |
| Instrument held | 8-K Item 1.01 summary, note or warrant form |
| Principal or number of securities | 8-K, 10-Q debt or equity footnote |
| Conversion or exercise price | Note or warrant form, 10-Q footnote |
| Ownership limit | Warrant or note, "Beneficial Ownership Limitation" |
| Registration rights | Registration rights agreement exhibit |
A 10-Q footnote is the best place to see the current state: principal outstanding, conversions during the quarter and amendments. If a footnote gives a conversion price but no outstanding balance, the share count that note can become is not computable from that filing.
Role two: the placement agent or underwriter
The intermediary is described in the "Plan of Distribution" section of a 424B5. The wording tells you the type of deal:
- "Firm commitment": an underwriter buys the securities itself and resells them. It carries the risk of not reselling.
- "Best efforts" or "reasonable best efforts": a placement agent only arranges sales and buys nothing.
- "Sales agent": used for an at-the-market offering, where the agent sells shares into the market over time.
A prospectus supplement filed on 2026-09-30 (accession 0001493152-26-045049) is a clear example of the best-efforts form. It states that the company engaged a firm "to act as our exclusive placement agent in connection with this offering", and that:
The placement agent has agreed to use its best efforts to arrange for the sale of the securities offered by this prospectus supplement. The placement agent is not purchasing or selling any of the securities we are offering
The same document notes the company's limit on selling more than one-third of its public float in any 12 calendar months while its float stays below $75 million, which is the baby shelf rule. That sentence explains why many small offerings are sized the way they are.
What the agent is paid
The fee table near the front of a 424B5 shows it directly. A prospectus supplement filed the same day (accession 0001193125-26-407980) disclosed a total offering price of $4,997,984.30, placement agent fees of $299,879.06, and proceeds before expenses of $4,698,105.24, with a footnote stating a cash fee "equal to 6.00% of the aggregate proceeds". The arithmetic checks: $4,997,984.30 × 6.00% = $299,879.06.
Look beyond the cash fee. Agents frequently receive:
- Agent warrants, often for 5% to 7.5% of the shares sold, at a premium to the offering price.
- Expense reimbursement, sometimes capped at a stated dollar amount.
- A tail: a fee on financings with the same investors for 6 to 12 months afterwards.
- A right of first refusal to act on the company's next financing.
Role three: the selling shareholder
A resale S-1 (or resale S-3) registers shares that a holder already owns or can acquire, so the holder can sell them publicly. The company receives no proceeds from those sales, except any warrant exercise price. The key section is the "Selling Stockholders" table.
A hypothetical example for Company X, which has 20,000,000 shares outstanding:
| Selling stockholder | Shares beneficially owned before | Shares offered | Shares owned after | % after |
|---|---|---|---|---|
| Investor A (1) | 1,050,000 | 6,000,000 | 0 | 0.0% |
| Investor B (2) | 300,000 | 1,500,000 | 0 | 0.0% |
(1) Includes shares issuable on conversion of a note. Beneficial ownership is limited by a 4.99% ownership limitation; shares offered reflect all shares issuable on full conversion without regard to that limitation. (2) Includes shares issuable on exercise of warrants.
All figures hypothetical.
The columns tell different stories. "Beneficially owned before" is capped by the ownership blocker, so it looks small. "Shares offered" is the full amount the registration covers. The registration covers 7,500,000 shares, 37.5% of Company X's outstanding count, even though the ownership column sums to only 1,350,000.
The footnotes usually also disclose any material relationship with the company in the past three years, who has voting and dispositive power over the shares, and whether the holder is a broker-dealer or affiliate.
The Plan of Distribution in a resale
A resale prospectus has its own Plan of Distribution, describing how the selling stockholder may sell: on the exchange, in privately negotiated trades, through brokers, and so on. It typically states that the selling stockholder may be deemed an "underwriter" within the meaning of the Securities Act. That is a legal characterization of its role in distributing the shares, not a description of an underwriting agreement.
How to check a company on Signal8
- A company's Dilution tab (example) includes a Financing Counterparties panel on its Overview section, listing named counterparties and their role in each deal as transcribed from filings. Where a counterparty could not be determined from the filings, it says so rather than showing an empty list. Coverage focuses on small caps.
- New 424B5 and resale registration filings appear on the live SEC filings feed.
- The dilution screener compares dilution-related data across companies.
FAQ
What is the difference between a placement agent and an underwriter?
An underwriter in a firm-commitment offering buys the securities from the company and resells them, taking the risk that it cannot. A placement agent in a best-efforts offering only arranges sales between the company and investors and buys nothing itself. Both are paid fees, disclosed in the prospectus supplement's offering table and Plan of Distribution.
What does a selling stockholder table show?
It lists each holder whose shares are being registered for resale, how many shares it beneficially owns before the offering, how many shares the prospectus covers, and how many it would own afterward. Footnotes explain warrants or notes included in the count and any ownership limitations. The "shares offered" column shows the size of the registered resale.
Does the company receive money when selling stockholders sell?
No. In a resale registration the proceeds go to the selling stockholders. The company receives cash only if warrants are exercised for cash to obtain the shares. That is why resale registrations are sometimes described as adding supply without adding cash.
Where are placement agent warrants disclosed?
In the Plan of Distribution of the 424B5, and often in the 8-K announcing the offering. The disclosure usually gives the number of agent warrants as a percentage of shares sold, the exercise price and the term. They are separate from any warrants issued to investors.
See it on DilutionScan
Companies DilutionScan covers, with the instruments read from their SEC filings. Open one to see each instrument and the filing it came from.
- GNSGenius Group Limited8 warrant series, 1 convertible, 1 ATM program, 3 shelf registrations and 2 completed offerings on file
- SMXSMX (Security Matters) Public Limited Company Ordinary Shares10 warrant series, 8 convertibles, 2 equity lines, 4 shelf registrations, 4 S-1 registrations and 2 completed offerings on file
- MLGOMicroAlgo, Inc. Ordinary Shares2 warrant series, 5 convertibles and 2 shelf registrations on file
- HOLOMicroCloud Hologram Inc. Ordinary Shares2 warrant series, 1 convertible, 3 shelf registrations and 2 completed offerings on file
Terms in this guide
- Placement agent
- A placement agent is a broker-dealer hired to find investors for a company's offering on a best-efforts basis, paid a cash fee and often warrants, without committing to buy the securities.
- Selling shareholder
- A selling shareholder is a holder named in a resale registration statement whose shares are being registered so that holder, not the company, can sell them publicly.
- S-1 resale registration
- An S-1 resale registration registers shares already issued or issuable to named investors so they can sell them publicly; the company itself usually receives no proceeds from those sales.
- Form 424B5 prospectus supplement
- A 424B5 is a prospectus supplement filed under SEC Rule 424(b)(5) to document a specific offering made off an effective shelf, stating the securities sold, the price and the use of proceeds.
- Baby shelf rule
- The baby shelf rule (Form S-3 General Instruction I.B.6) caps companies with under $75 million of public float at selling one-third of that float in primary shelf offerings in any 12 months.
- Ownership blocker
- An ownership blocker is a clause that stops a holder from converting or exercising if doing so would push its beneficial ownership above a set limit, typically 4.99% or 9.99% of the common stock.
- Registered direct offering
- A registered direct offering is a sale of new shares to a small group of investors, arranged by a placement agent off an effective shelf, so the shares are freely tradeable at closing.
- At-the-market (ATM) offering
- An at-the-market (ATM) offering is a program that lets a company sell newly issued shares into the open market at prevailing prices, a little at a time, through a sales agent.
Sources
- SEC accession 0001493152-26-045049 Form 424B5, filed 2026-09-30, plan of distribution naming an exclusive best-efforts placement agent, and a statement of the one-third public float limit
- SEC accession 0001193125-26-407980 Form 424B5, filed 2026-09-30, offering table showing a 6.00% placement agent cash fee and proceeds before expenses
Related guides
- Finding the Lender and Deal Terms in SEC FilingsWhere a financing's terms and counterparty are disclosed, from 8-K Items 1.01 and 3.02 to the securities purchase agreement exhibit, with a phrase checklist.
- Concurrent Private Placement Warrants ExplainedWhat concurrent private placement warrants are, why registered direct offerings pair with unregistered warrants, and how to count the shares they add later.
- Beneficial Ownership Blockers: 4.99% and 9.99% CapsHow 4.99% and 9.99% beneficial ownership blockers cap a holder's stake at any moment but not total dilution, explained with a worked convert-and-sell cycle.
- Adverse Financing Terms: MFN, Partitions, No MaturityAdverse financing terms that rarely make headlines, from undisclosed balances and partitioned notes to MFN and participation rights, and how each adds dilution.
- Toxic Convertible Notes: How Variable Pricing WorksToxic convertible notes explained: how variable conversion prices, VWAP discounts and lookback windows work, and what happens to share counts with no floor.
- Full Ratchet Anti-Dilution and Price Resets ExplainedFull ratchet vs weighted-average anti-dilution explained, plus price resets, with a worked share-count table as the stock falls from $1.00 to $0.10 per share.
Check any ticker for dilution
DilutionScan reads each covered company's SEC filings and lists its warrants, convertibles, ATM programs, shelves and S-1s on one page, with a dilution rating and cash runway.
This guide is from the Signal8 Academy, the research team behind DilutionScan. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.