Being Public and Reporting

10-K Filing Item 5: Market for Securities

Embarking on the Form 10-K filing journey for the first time? Understand the complexities of Item 5 disclosure, especially for Emerging Growth Companies (EGCs) and Smaller Reporting Companies (SRCs), with insights on market equity, stockholder matters, and issuer securities. Explore the nuances of regulatory requirements and implications for EGCs and SRCs in this comprehensive guide.

Feb 14, 2024
February 14, 2024

Embarking on the process of filing a Form 10-K for the first time can be both a significant milestone and a complex endeavor for companies. Understanding the intricacies of Item 5 filing is crucial, as it directly addresses the market for common equity, stockholder matters, and issuer purchases of equity securities. The status of being an Emerging Growth Company (EGC) or a Smaller Reporting Company (SRC) introduces additional considerations that impact the requirements of the 10-K Item 5 filing. In this article we outline the specific requirements associated with 10-K Item 5 disclosure and explore the implications for EGCs and SRCs in navigating the regulatory landscape.

Item 5 of a Form 10-K addresses the market for the registrant's common equity, along with related stockholder matters and issuer purchases of equity securities, encompassing details about the company's stock, stockholders, dividends, and any repurchases of its own stock. The Securities and Exchange Commission (SEC) has three principal S-K regulations mandating registrants to disclose specific material qualitative descriptors of their business in 10-K Item 5, comprising the following:

Regulation Description
S-K Item 201 Disclosure of market information about each class of the registrant's common stock
S-K Item 701 Disclosures of recent sales of unregistered securities and the use of proceeds from registered securities
S-K Item 703 Disclosures of all repurchases (both open market and private transactions)

S-K Item 201

Regulation S-K Item 201 requires disclosure of market price and dividends on the registrant's common equity and related stockholder matters. There are five requirements that make up this part of this regulation.

a. Market information:

The requirements for this section are to specify the principal United States markets and the corresponding trading symbols for each class of the registrant's common equity. If the primary United States market for the common equity is not an exchange, clarify that any over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. For foreign registrants, also provide information on the principal foreign public trading market, if any, and the corresponding trading symbol for each class of common equity.

In cases where there is no established public trading market for a class of common equity, explicitly state this fact. If applicable, disclose the range of high and low bid information for each full quarterly period within the two most recent fiscal years and any subsequent interim period.

b. Shareholders:

Filers must disclose the approximate number of holders for each class of the registrant's common equity as of the latest practicable date. It's important to note that companies may not have complete information for this, particularly regarding shares held through brokerage firms (e.g., Fidelity, Charles Schwab, etc.). In Tesla's 10K, they acknowledge this limitation, stating, "As of January 31, 2011, there were 365 holders of record of our common stock. A substantially greater number of holders of our common stock are 'street name' or beneficial holders, whose shares are held by banks, brokers and other financial institutions." The reality is that the true number of people holding Tesla stock was likely much higher than 365 when including those held through brokerages. Therefore, while filings provide useful insights, they may not capture the complete picture of ownership.

c. Dividends:

It is required for registrants with a track record of refraining from paying cash dividends, despite having the financial capacity to do so, to disclose their intention regarding future cash dividends. If there is no intention to pay cash dividends in the foreseeable future, it is recommended to explicitly state this in the filing. For registrants with a history of cash dividend payments, it is encouraged to disclose whether they anticipate the continuation of comparable cash dividends in the future. If there are changes expected in the amount or rate of cash dividend payments, provide information on the nature of these changes.

d. Securities authorized for issuance under equity compensation plans:

The disclosure mandated by Item 201(d) concerning securities authorized for issuance under equity compensation plans should be placed in Item 12 of the 10-K rather than Item 5. In most cases, this implies that the disclosure will find its place in the proxy statement.

View requirements to disclose equity compensation securities in the 10-K Item 12

In the following tabular format, present information regarding compensation plans, including individual compensation arrangements, under which equity securities of the registrant are authorized for issuance. Aggregate the information into the following two categories: all compensation plans previously approved by security holders and all compensation plans not previously approved by security holders.

Plan category Number of securities to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants, and rights Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders

e. Performance graphs:

The performance graph is only required for inclusion in the Annual Report to Shareholders, commonly known as the Glossy Annual Report. If the performance graph is not included in the 10-K filing, it must be included in the Glossy Annual Report that is available on the company’s website. While permitted to be included in the proxy statement, such inclusion does not meet the requirement for the performance graph to be part of the Glossy Annual Report.

The performance graphs are required to contain a line graph that illustrates the annual percentage change in the cumulative total shareholder return of a class of common stock registered under section 12 of the Exchange Act. This calculation involves dividing the sum of the cumulative dividends for the measurement period (assuming dividend reinvestment) and the difference between the registrant's share price at the end and the beginning of the measurement period by the share price at the beginning of the measurement period. This graph should present information for the registrant's last five fiscal years.

This graph is to be compared with the following:

  1. The cumulative total return of a broad equity market index (assuming dividend reinvestment), comprising companies whose equity securities are traded on the same exchange or have comparable market capitalization. If the registrant is a company within the S&P 500 Stock Index, it is obligated to use that index.
  2. The cumulative total return (assuming dividend reinvestment) of:
    1. A published industry or line-of-business index;
    2. Peer issuers selected in good faith. In cases where the registrant does not select peer issuers based on an industry or line-of-business, a disclosure of the basis for selection is required; or
    3. Issuers with similar market capitalizations. This option is only available if the registrant does not utilize a published industry or line-of-business index and believes it cannot reasonably identify a peer group. If this alternative is chosen, the graph should include a statement explaining the reasons for this selection.
View an example of a performance graph

S-K Item 701

Regulation S-K Item 701 requires disclosure regarding all securities sold by the registrant within the past three years that were not registered under the Securities Act. This includes sales of reacquired securities, new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities. There are six requirements that make up this part of this regulation.

  1. Securities sold: Specify the date of sale and details of the title and number of securities sold.
  2. Underwriters and other purchasers: Provide the names of principal underwriters, if applicable. For securities not publicly offered, specify the individual or category of individuals to whom the securities were sold.
  3. Consideration: For securities sold for cash, state the aggregate offering price and underwriting discounts or commissions. For securities sold another way, specify the nature of the transaction and the nature and aggregate amount of consideration received by the registrant.
  4. Exemption from registration claimed: Indicate the section of the Securities Act or the SEC rule under which exemption from registration was claimed and briefly state the facts relied upon for claiming the exemption.
  5. Terms of conversion or exercise: For securities convertible or exchangeable into equity or represented by warrants/options, disclose the terms of conversion or exercise when presenting information on Form 8–K, Form 10–Q, Form 10–K, or Form 10–D under the Exchange Act.
  6. Use of proceeds: After the effective date of the initial Securities Act registration statement, issuers must disclose the use of IPO proceeds in their first periodic report, continuing until full disclosure or termination of the offering. If the predecessor issuer’s registration statement requires a report, the successor issuer must comply. Subsequent reports need updates only if changes have occurred. The disclosure should cover effective date, offering status, termination explanation (if applicable), managing underwriters, securities titles, number registered/sold, expenses details, net offering proceeds, and usage specifics. Material changes in proceeds usage must be briefly described.

S-K Item 703

Regulation S-K Item 703 requires disclosure of repurchases of equity securities by the issuer and affiliated purchasers for “any repurchase made in a month within the fourth quarter of the fiscal year covered by the report (provide disclosures covering repurchases made monthly). For example, if the fourth quarter began on January 16 and ended on April 15, the chart would show repurchases for the months from January 16 through February 15, February 16 through March 15, and March 16 through April 15.” Disclosure of the following information must be provided:

  1. The objectives or rationales for each repurchase plan or program and the criteria used to determine the amount of repurchases.
  2. Details on shares purchased outside publicly announced plans. Specify transaction nature (whether the acquisitions occurred through open-market transactions, tender offers, or in satisfaction of the issuer's obligations upon exercise of outstanding put options).
  3. For announced plans, provide the announcement date, approved amount, expiration date, expired plans, and each plan the issuer has determined to terminate prior to expiration or under which the issuer does not intend to make further purchases.
  4. Disclose policies and procedures for purchases and sales of the issuer's securities by officers and directors during a repurchase program, highlighting any transaction restrictions in place.

EY recommends depicting the following information in a tabular format aggregated monthly about all issuer repurchases for its last fiscal quarter as a part of meeting this requirement:

  1. Specify the total number of shares (or units) purchased.
  2. The average price paid per share (or unit).
  3. The total number of shares (or units) purchased as part of publicly announced repurchase plans or programs (with disclosure in a footnote to the table of the principal terms of each such plan or program).
  4. The maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs.

Requirement Exceptions: Emerging Growth Companies (EGC) and Smaller Reporting Companies (SRC)

Companies classified as Emerging Growth Companies (EGCs) must have completed their IPO after December 8, 2011, and their annual gross revenues should be less than $1.07 billion during the most recent fiscal year. Additionally, an EGC’s public float should be less than $700 million or, in the absence of a public float, annual gross revenues should be less than $1.07 billion. EGC status is maintained until one of the following events occurs: the company meets specific criteria related to revenue thresholds, the company reaches its fifth anniversary of its IPO, the company becomes a “large accelerated filer,” or the company issues more than $1 billion in non-convertible debt within the previous three years. A company may voluntarily withdraw from EGC status at any point; however, this action is irrevocable. Also, it is worth noting that nothing precludes an EGC from providing non-EGC disclosures.

Smaller Reporting Companies (SRCs) are characterized by having a public float of less than $250 million. If a company has no public float or a public float less than $700 million, it must also meet the criterion of annual revenues being less than $100 million in the most recently completed fiscal year to be considered an SRC. Alternatively, if a company has neither a public float nor annual revenues, it qualifies as an SRC if its total assets are less than $100 million in the most recently completed fiscal year.

For companies that qualify as Emerging Growth Companies (EGC) or Smaller Reporting Companies (SRC), the performance graph required by regulation S-K Item 201(e) may be omitted from the 10-K.

Example: Tesla (not an EGC/SRC)

In 2010, Tesla filed its first 10-K after its IPO on June 29, 2010. Tesla did not file as an EGC or SRC. Notably, its 10-K item 5 disclosure contained the following items:

Market Information:

Tesla disclosed that its common stock (TSLA) has been traded on NASDAQ since June 29, 2010. It also stated that its initial public offering (IPO) was priced at $17.00 per share on June 28, 2010. Tesla also provided the following data on the high and low closing prices for different quarters in 2010:

Dividend Policy:

Tesla has never declared or paid cash dividends on common or convertible preferred stock and has no anticipation of paying cash dividends in the foreseeable future. Any future dividend decisions depend on various factors and compliance with applicable laws.

Stock Performance Graph:

Unregistered Sales of Equity Securities:

Tesla disclosed that on July 2, 2010, it sold 2,941,176 shares of common stock to Toyota Motor Corporation at a price of $17.00 per share, generating aggregate proceeds of $50 million. Subsequently, on November 2, 2010, Tesla conducted another sale, offering 1,418,573 shares of common stock to an entity affiliated with Panasonic Corporation at a price of $21.148 per share, resulting in aggregate proceeds of $30 million. Tesla also disclosed that all of these shares were issued in private transactions under Section 4(2) of the Securities Act of 1933.

Use of Proceeds:

Telsa’s IPO involved the sale of 15,295,000 shares of common stock. It disclosed that the underwriters of the offering were Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. The gross offering price was $201,970,200, with net offering proceeds to Tesla of approximately $184.5 million. These proceeds were used for working capital, including inventory, personnel costs, equipment, and operating expenses.

Please see Tesla’s full 2010 10-K item 5 for additional details here

Example: LiveVox Holdings, Inc. (EGC/SRC)

In 2021, LiveVox Holdings, Inc. filed its first 10-K after its IPO on June 22, 2021. LiveVox Holdings, Inc. filed as both an EGC and SRC. Notably, its 10-K item 5 disclosure contained the following listing:

Market Information

LiveVox Holdings, Inc.’s Class A common stock, Warrants and Units trade on Nasdaq under the symbols “LVOX,” “LVOXW” and “LVOXU,” respectively.


As of March 7, 2022, there were 26 holders of record of Class A common stock, 13 holders of record of Warrants, and 1 holder of record of Units. These numbers exclude beneficial holders whose securities are held by banks, brokers, and other financial institutions.

Distribution Policy

LiveVox Holdings, Inc. has not paid any cash dividends on its Class A common stock to the date of this filing. The payment of cash dividends in the future will be dependent upon revenues and earnings, capital requirements, and general financial condition. The payment of any cash dividends will be within the discretion of the board of directors at such time. In addition, the board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, under the terms of credit facilities, LiveVox Holdings, Inc.’s ability to declare dividends is limited by restrictive covenants.

Please see LiveVox Holding, Inc.’s full 2021 10-K item 5 for additional details here.

Resources Consulted: