A West Virginia convertible note agreement is a legal contract often used in start-up or early-stage financing arrangements. It typically includes terms and conditions that govern the conversion of debt into equity, enabling investors to invest in a company with the potential to convert their investment into ownership shares in the future. It is essential to have a well-drafted convertible note agreement to ensure a clear understanding between the company and the investor regarding repayment terms, interest rates, maturity, and conversion provisions. One of the key aspects of the West Virginia convertible note agreement is the conversion feature, which allows the investor to convert their outstanding debt (the principal and accrued interest) into equity, usually at a pre-determined conversion price. This conversion price may be fixed or determined based on a specified formula or valuation metric, commonly a discount or a valuation cap. There are different types of convertible note agreements that may be used in West Virginia, including: 1. Simple Agreement for Future Equity (SAFE): While not strictly a convertible note, SAFE is a popular instrument used in early-stage funding. It provides investors with the right to convert their investment into equity upon a specified trigger event, like a subsequent equity financing round or acquisition. SAFE agreements are generally simpler than traditional convertible note agreements as they do not bear interest or have maturity dates. 2. Traditional Convertible Debt: This type of convertible note agreement includes both a debt component and a conversion feature. The debt component specifies the repayment terms, such as interest rate, maturity date, and repayment schedule. The conversion feature outlines the conditions for converting the outstanding debt into equity shares. Traditional convertible debt combines the characteristics of debt and equity, providing flexibility to investors. 3. Convertible Note with Valuation Cap: This type of convertible note agreement incorporates a predetermined valuation cap, which sets a maximum value for the company upon conversion. The investor benefits by ensuring that their conversion price is based on the company's valuation at a given cap, regardless of any future valuation increase. It offers the investor downside protection should the company's valuation skyrocket before conversion. 4. Convertible Note with Discount Rate: A convertible note agreement with a discount rate allows the investor to convert their debt into equity at a predetermined discount to the company's valuation in a future equity financing round. This discount represents an incentive for early investment by providing investors with a more favorable conversion price compared to later-round investors. When drafting a West Virginia convertible note agreement, it is crucial to seek legal advice to ensure compliance with state laws and regulations. Crafting a detailed agreement with precise terms and clarity about the rights and obligations of both parties is essential for a smooth financing process and to protect the interests of all involved stakeholders.