A company is raising their Series A round with a pre$-$money valuation of $$4M$ and $1,000,000$ in outstanding shares. They are raising a $$1M$ round, but they have an issued convertible note that will convert. The note's terms are as follows:

$$1$M Principle Amount

$$10M$ Valuation Cap

$20\%$ Discount

If using the Pre$-$Money Conversion Method, how many shares do the noteholders purchase and would they convert at a Discount or Valuation Cap? $(10$ Points$)$

Discount, $454,545$ shares

Discount, $363,636$ shares

Val Cap; $363,636$ shares

Val Cap; $454,545$ shares