The issuer has the option to pay the principal amount on redemption or maturity, or to pay the investor in common shares. But the formula for common shares means the investor may theoretically pay a much higher price than they wanted to.
For example, if you paid $1,000 for the debenture that allows you to convert into 58.824 common shares, your $1,000 buys you approximately 58 shares worth $17 each for a total value of $1,000. But let's say that the trading price of the stock for the past 20 days has been $40. The company could pay you in common stock and the price of the common stock would be determined as $1,000 divided by 95% of $40 (i.e., $1,000 / $38). in this case, the company can provide you with 26.3157 shares of stock.
