Convertibles, preferred and toxic financing
Finding the Lender and Deal Terms in SEC Filings
Where 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.
Where are financing terms and lenders disclosed?
Every financing a US-listed company signs leaves a paper trail, and the trail almost always names the other side of the deal. The investor, the lender, the placement agent and the key economic terms are disclosed in a predictable set of documents.
You do not need a data vendor to find them; you need to know which filing to open and which section to read.
This guide is about locating terms and parties, not judging them. The structures sometimes called toxic financing (variable-price conversion, resets, no floor) are properties of a contract. The same investor can write a plain fixed-price deal with one company and a variable-price note with another, so the useful question is always "what does this agreement say?", never "who is this firm?".
The filing map
| Document | What it tells you | Where the counterparty appears |
|---|---|---|
| 8-K Item 1.01 | A material definitive agreement was signed; summary of terms | Usually named in the first paragraph |
| 8-K Item 2.03 | A direct financial obligation (loan, note) was created | Lender named with principal and rate |
| 8-K Item 3.02 | Unregistered equity was sold (private placement) | Purchasers and exemption relied on |
| Exhibit 10.x | Securities purchase agreement, loan agreement, registration rights | Signature page and preamble |
| Exhibit 4.x | Form of note, warrant or certificate of designation | "Holder" defined on page one |
| 424B5 | Prospectus supplement for a registered takedown | "Plan of Distribution", agent named |
| Resale S-1 or S-3 | Registers shares for an investor to sell | "Selling Stockholders" table, listing each selling shareholder |
An 8-K is due within four business days of the event, so the summary arrives quickly. The exhibits are frequently attached to that same 8-K, but sometimes they are filed later with the next 10-Q, with a sentence saying so.
Reading an 8-K financing announcement
A financing 8-K typically follows this order:
- Item 1.01 Entry into a Material Definitive Agreement. "On [date], the Company entered into a Securities Purchase Agreement (the 'Purchase Agreement') with [investor]..." The defined term for the investor ("the Investor", "the Holder", "the Purchasers") is what you will search for in the exhibits.
- The economic summary. Principal, original issue discount, interest rate, maturity, conversion price, warrants and their exercise price.
- Item 3.02. The exemption relied on, often Section 4(a)(2) or Regulation D, which marks the securities as unregistered. A PIPE usually appears here; a registered direct offering usually does not, because it is sold off a shelf with a 424B5.
- Item 9.01 Exhibits. The exhibit index. This is where you find the full agreements.
Reading the securities purchase agreement
Open the exhibit numbered 10.1 or 10.2 and go straight to three places:
- The preamble and signature page. The parties, by legal name. Investors often sign through a fund vehicle; the name is still disclosed.
- Article 1, Definitions. This is where the economics hide. Look up "Conversion Price", "VWAP", "Trading Day", "Variable Rate Transaction", "Exempt Issuance" and "Floor Price" before reading anything else.
- Covenants. Restrictions on future financing, participation rights, and most-favored-nation clauses (covered in the lesser-known terms guide).
A definitions section can be long but it is mechanical. For example, an agreement filed as Exhibit 10.2 to an 8-K on 2026-10-06 (accession 0001213900-26-107308) defines its reference price this way:
"VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Class A Common Stock are then listed or quoted on a Trading Market, the daily volume weighted average price
Once you know how VWAP is defined, a conversion clause referring to "85% of the lowest VWAP" becomes precise: you know which price feed, which session and which fallback apply. The same agreement also includes a "Variable Rate Transaction" provision, a defined term that typically restricts the company from entering other variable-price financings. Its presence tells you the drafting contemplates variable-price structures, though by itself it says nothing about whether this deal is one.
A phrase checklist
Search the exhibit text (Ctrl+F, or full-text search) for these phrases. Each points to a specific economic term.
| Phrase | What it usually signals |
|---|---|
| "lesser of" / "lower of" | Conversion price is the lower of a fixed price and a market formula |
| "lowest" + "VWAP" or "trading price" | Holder-favorable reference price |
| "Trading Days immediately preceding" | The lookback window length |
| "% of" next to a price | A VWAP discount |
| "Floor Price" | A minimum conversion price exists; check its level |
| "Original Issue Discount" | Company receives less than face value |
| "Beneficial Ownership Limitation" | 4.99% or 9.99% blocker |
| "Subsequent Equity Sales" / "Dilutive Issuance" | Anti-dilution reset |
| "Participation" / "Right of First Refusal" | Investor's right to join future deals |
| "Most Favored Nation" | Investor can adopt better terms given to others |
| "Event of Default" + "Mandatory Default Amount" | Penalty principal and default conversion terms |
| "Commitment Shares" / "Commitment Fee" | Shares paid to the investor just for signing |
A worked example of translating terms into numbers
Hypothetical Company X's 8-K says it sold a $1,100,000 note for $1,000,000 in cash (a 10% original issue discount), convertible at the lesser of $0.50 and 80% of the lowest VWAP in the 15 prior trading days, plus 200,000 commitment shares.
- Cost of the money: $100,000 of discount plus the value of 200,000 shares. At a $0.40 stock price, that is $80,000 more, so $180,000 of cost on $1,000,000 received before any interest.
- Shares at the fixed price: $1,100,000 ÷ $0.50 = 2,200,000.
- Shares if the lowest VWAP is $0.25: conversion price = $0.20, so $1,100,000 ÷ $0.20 = 5,500,000.
- Shares if the lowest VWAP is $0.10: conversion price = $0.08, so 13,750,000.
All figures hypothetical. Without a floor, the last line has no lower bound.
Where Signal8 surfaces the counterparty
- A company's Dilution tab (example) includes a Financing Counterparties panel on its Overview section that lists named counterparties and their role in each deal, as transcribed from filings. Where a counterparty field could not be determined from the filings, the panel says so rather than implying there is none. Coverage focuses on small caps.
- The live SEC filings feed shows financing 8-Ks and 424B5s as they arrive.
- The dilution screener compares companies on dilution-related data.
FAQ
Which 8-K item tells me a company sold shares privately?
Item 3.02, Unregistered Sales of Equity Securities. It states what was sold, to whom (sometimes by category rather than name), for how much, and which exemption from registration the company relied on. Item 1.01 often accompanies it to describe the agreement itself, and Item 2.03 appears when the deal creates debt such as a convertible note.
Where do I find the actual contract rather than the summary?
In the exhibits, listed under Item 9.01 of the 8-K. Purchase and loan agreements are usually Exhibit 10.x; forms of notes, warrants and preferred stock designations are usually Exhibit 4.x or 3.x. If the 8-K says an agreement "will be filed" later, it typically appears as an exhibit to the next 10-Q or 10-K.
Is the investor always named?
In the agreement itself, yes: contracts identify their parties. The 8-K summary sometimes refers only to "an institutional investor" or "certain accredited investors". If so, the exhibit signature page, a later resale registration's selling stockholder table, or a 424B5's plan of distribution will normally name the parties.
Does the same investor always use the same terms?
No. Terms are negotiated deal by deal and depend on the company's situation. An investor's presence in one variable-price deal says nothing about the terms of its other deals, which is why the reliable approach is to read each agreement on its own.
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
- Form 8-K
- A Form 8-K is the SEC current report a public company files, generally within four business days, to disclose material events such as agreements, offerings, executive changes and listing notices.
- 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.
- Toxic financing
- Toxic financing is market slang for financing structures, such as floorless or variable-price convertibles and aggressive price resets, whose share issuance grows as the stock price falls.
- PIPE (private investment in public equity)
- A PIPE (private investment in public equity) is a private sale of unregistered shares, warrants or convertibles by a public company to selected investors, usually followed by a resale registration.
- 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.
- 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.
- VWAP discount
- A VWAP discount is the percentage below a volume-weighted average price at which an investor buys or converts into shares under a financing, such as 97% of VWAP or 80% of the lowest VWAP.
Sources
- SEC accession 0001213900-26-107308 Form 8-K, filed 2026-10-06, Exhibit 10.2 agreement with a defined term for VWAP and a Variable Rate Transaction provision
Related guides
- How to Find Selling Shareholders and Placement AgentsCounterparty 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.
- 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.
- 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.
- Prepaid Advance Agreements: How They Become SharesHow a prepaid advance agreement works: cash up front repaid in discounted shares, and how the discount, lookback, floor and triggers set the share count.
- How to Check a Penny Stock for Dilution in 20 MinutesA six-step filing checklist for dilution risk in a small-cap stock. What to open on EDGAR, which phrases to search for, and the four numbers to write down.
- 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.