A debenture is a debt contract that does not contain any security. The debtor is viewed as so financially strong
that money can be obtained at a reasonable interest rate without having to add extra security agreements to the
Covenants and other terms. Notes and bonds can contain an almost infinite list of other agreements. Many of
these are promises made by the debtor to help ensure that money will be available to make required payments.
For example, the debtor might agree to limit dividend payments until the liability is extinguished, keep its current
ratio above a minimum standard, or limit the amount of other debts that it will incur.
Debts can also be convertible so that the creditor can swap them for something else of value (often the capital
stock of the debtor) if that seems a prudent move. The notes to the financial statements for VeriSign Inc. for
December 31, 2008, and the year then ended describe one such noncurrent liability. “The Convertible Debentures
are initially convertible, subject to certain conditions, into shares of the Company common stock at a conversion
rate of 29.0968 shares of common stock per $1,000 principal amount of Convertible Debentures, representing an
initial effective conversion price of approximately $34.37 per share of common stock.”