Definition of Buy/Sell Agreement

Buy/Sell Agreement

This is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.

Bond agreement

A contract for privately placed debt.

Bretton Woods Agreement

An agreement signed by the original United Nations members in 1944 that
established the International Monetary Fund (IMF) and the post-World War II international monetary system
of fixed exchange rates.

Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Buy

To purchase an asset; taking a long position.

Buy in

To cover, offset or close out a short position. Related: evening up, liquidation.

Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated
price or lower.
Related: sell limit order.

Buy on close

To buy at the end of the trading session at a price within the closing range.

Buy on margin

A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.

Buy on opening

To buy at the beginning of a trading session at a price within the opening range.

Buy-and-hold strategy

A passive investment strategy with no active buying and selling of stocks from the
time the portfolio is created until the end of the investment horizon.

Buydowns

Mortgages in which monthly payments consist of principal and interest, with portions of these
payments during the early period of the loan being provided by a third party to reduce the borrower's monthly
payments.

Buying the index

Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
same return.

Buyout

Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is
done with borrowed money.

Buy-back

Another term for a repo.

Buy-side analyst

A financial analyst employed by a non-brokerage firm, typically one of the larger money
management firms that purchase securities on their own accounts.

Cash deficiency agreement

An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.

Concession agreement

An understanding between a company and the host government that specifies the
rules under which the company can operate locally.

Double-tax agreement

agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Equity contribution agreement

An agreement to contribute equity to a project under certain specified
conditions.

Fiscal agency agreement

An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an
agent of the borrower.

Forward rate agreement (FRA)

agreement to borrow or lend at a specified future date at an interest rate
that is fixed today.

Interest rate agreement

An agreement whereby one party, for an upfront premium, agrees to compensate the
other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined
level (the strike rate).

Leveraged buyout (LBO)

A transaction used for taking a public corporation private financed through the use
of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new
corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or
junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the
bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in
such investments.

Management buyout (MBO)

Leveraged buyout whereby the acquiring group is led by the firm's management.

Note agreement

A contract for privately placed debt.

Option seller

Also called the option writer , the party who grants a right to trade a security at a given price in
the future.

Preferred stock agreement

A contract for preferred stock.

Protective put buying strategy

A strategy that involves buying a put option on the underlying security that is
held in a portfolio. Related: Hedge option strategies

Purchase agreement

As used in connection with project financing, an agreement to purchase a specific
amount of project output per period.

Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.

Repurchase agreement

An agreement with a commitment by the seller (dealer) to buy a security back from
the purchaser (customer) at a specified price at a designated future date. Also called a repo, it represents a
collateralized short-term loan, where the collateral may be a Treasury security, money market instrument,
federal agency security, or mortgage-backed security. From the purchaser (customer) perspective, the deal is
reported as a reverse Repo.

Revolving credit agreement

A legal commitment wherein a bank promises to lend a customer up to a
specified maximum amount during a specified period.

Sell hedge

Related: short hedge.

Sell limit order

Conditional trading order that indicates that a, security may be sold at the designated price or
higher. Related: buy limit order.

Selling group

All banks involved in selling or marketing a new issue of stock or bonds

Selling short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from
a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you
borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares
of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.

Sell-side analyst

Also called a Wall Street analyst, a financial analyst who works for a brokerage firm and
whose recommendations are passed on to the brokerage firm's customers.

Short selling

Establishing a market position by selling a security one does not own in anticipation of the price
of that security falling.

Smithsonian agreement

A revision to the Bretton Woods international monetary system which was signed at
the Smithsonian Institution in Washington, D.C., U.S.A., in December 1971. Included were a new set of par
values, widened bands to +/- 2.25% of par, and an increase in the official value of gold to US$38.00 per ounce.

Standby agreement

In a rights issue, agreement that the underwriter will purchase any stock not purchased by investors.

Standstill agreements

Contracts where the bidding firm in a takeover attempt agrees to limit its holdings
another firm.

Swap buy-back

The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Throughput agreement

An agreement to put a specified amount of product per period through a particular
facility. For example, an agreement to ship a specified amount of crude oil per period through a particular
pipeline.

Tolling agreement

An agreement to put a specified amount of raw material per period through a particular
processing facility. For example, an agreement to process a specified amount of alumina into aluminum at a
particular aluminum plant.

SELLING EXPENSES

What was spent to run the sales part of a company, such as sales salaries, travel, meals, and lodging for salespeople, and advertising.

Optimum selling price

The price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service.

General Agreement

on Tariffs and Trade (GATT) a treaty
among many nations setting standards for tariffs and trade
for signees

make-or-buy decision

a decision that compares the cost of
internally manufacturing a component of a final product
(or providing a service function) with the cost of purchasing
it from outside suppliers (outsourcing) or from another
division of the company at a specified transfer price

North American Free Trade Agreement (NAFTA)

an agreement among Canada, Mexico, and the United States establishing the North American Free Trade Zone, with a resulting reduction in trade barriers

Leveraged buyout

The purchase of one business entity by another, largely using borrowed
funds. The borrowings are typically paid off through the future cash flow of
the purchased entity.

Selling price variance

The difference between the actual and budgeted selling price for
a product, multiplied by the actual number of units sold.

leveraged buyout (LBO)

Acquisition of the firm by a private group using substantial borrowed funds.

management buyout (MBO)

Acquisition of the firm by its own management in a leveraged buyout.

Totalization Agreement

An agreement between countries whereby an employee only has to pay Social Security taxes to the country in which he or she is working

Forward buying

The purchase of items exceeding the quantity levels indicated
by current manufacturing requirements.

Conditional Buyer

One of two parties to a conditional sale agreement, the other being the conditional seller.

Conditional Sale Agreement

An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.

Conditional Seller

One of two parties to a conditional sale agreement, the other being the conditional buyer.

Confidentiality Agreement

A legal document whereby the one party, usually the prospective investor, pledges to keep strictly confidential, and return on request, any and all information provided by the entrepreneur seeking funding.

Equity Buy-Back

Refers to the investors percentage ownership of a company that can be re-acquired by the company, usually at a pre-determined amount.

Purchase Agreement

This legal document records the final understanding of the parties with respect to the proposed transaction.

Contract

A term of reference describing a unit of trading for a financial or commodity future. Also, the actual
bilateral agreement between the buyer and seller of a transaction as defined by an exchange.

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk
to the option buyer that the option writer will not buy or sell the underlying as agreed.
Country economic risk Developments in a national economy that can affect the outcome of an international
financial transaction.

Futures contract

agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.

forward contract

agreement to buy or sell an asset in the future at an agreed price.

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