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Purchase agreement

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Definition of Purchase agreement

Purchase Agreement Image 1

Purchase agreement

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


Purchase Agreement

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



Related Terms:

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.


Dollar roll

Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a
portfolio with purchase of a similar security at a future date at an agreed-upon price.


Gestation repo

A reverse repurchase agreement between mortgage firms and securities dealers. Under the
agreement, the firm sells federal agency-guaranteed MBS and simultaneously agrees to repurchase them at a
future date at a fixed price.


Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at
$1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.



Overnight repo

A repurchase agreement with a term of one day.


Repo

A agreement in which one party sells a security to another party and agrees to repurchase it on a
specified date for a specified price. See: repurchase agreement.


Purchase Agreement Image 2

Reverse repo

In essence, refers to a repurchase agreement. From the customer's perspective, the customer
provides a collateralized loan to the seller.


Term repo

A repurchase agreement with a term of more than one day.
Term structure of interest rates
Relationship between interest rates on bonds of different maturities usually
depicted in the form of a graph often depicted as a yield curve. Harvey shows that inverted term structures
(long rates below short rates) have preceded every recession over the past 30 years.


Bargain-purchase-price option

Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.


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.


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.


Cash deficiency agreement

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


Closing purchase

A transaction in which the purchaser's intention is to reduce or eliminate a short position in
a stock, or in a given series of options.


Concession agreement

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


Conditional Sale Agreement

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


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.



Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.


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.


General Agreement

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


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).


Minimum purchases

For mutual funds, the amount required to open a new account (Minimum Initial
purchase) or to deposit into an existing account (Minimum Additional purchase). These minimums may be
lowered for buyers participating in an automatic purchase plan


Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.


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



Note agreement

A contract for privately placed debt.


Open-market purchase operation

A systematic program of repurchasing shares of stock in market
transactions at current market prices, in competition with other prospective investors.


open purchase ordering

a process by which a single purchase
order that expires at a set or determinable future
date is prepared to authorize a supplier to provide a large
quantity of one or more specified items on an as-requested
basis by the customer


Opening purchase

A transaction in which the purchaser's intention is to create or increase a long position in
a given series of options.


Preferred stock agreement

A contract for preferred stock.


Purchase

To buy, to be long, to have an ownership position.


Purchase accounting

Method of accounting for a merger in which the acquirer is treated as having purchased
the assets and assumed liabilities of the acquiree, which are all written up or down to their respective fair
market values, the difference between the purchase price and the net assets acquired being attributed to goodwill.


Purchase and sale

A method of securities distribution in which the securities firm purchases the securities
from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.


Purchase discounts

A contra account that reduces purchases by the amount of the discounts taken for early payment.


Purchase fund

Resembles a sinking fund except that money is used only to purchase bonds if they are selling
below their par value.


Purchase method

Accounting for an acquisition using market value for the consolidation of the two entities'
net assets on the balance sheet. Generally, depreciation/amortization will increase for this method compared
with pooling and will result in lower net income.


Purchase method

An accounting method used to combine the financial statements of
companies. This involves recording the acquired assets at fair market value, and the
excess of the purchase price over this value as goodwill, which will be amortized
over time.


Purchase price

Price actually paid for a security. Typically the purchase
price of a bond is not the same as the redemption value.


Purchase returns

A contra account that reduces purchases by the amount of items purchased that were subsequently returned.


Purchased In-Process Research and Development

Unfinished research and development that is acquired from another firm.


Purchases

Items purchased by the company for the purpose of resale.


Purchases journal

A journal used to record the transactions that result in a credit to accounts payable.


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 of stock

Device to pay cash to firm's shareholders that provides more preferable tax treatment
for shareholders than dividends. Treasury stock is the name given to previously issued stock that has been
repurchased by the firm. A repurchase is achieved through either a dutch auction, open market, or tender offer.


Revolving credit agreement

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


Share repurchase

Program by which a corporation buys back its own shares in the open market. It is usually
done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases
earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.


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.


Stock repurchase

A firm's repurchase of outstanding shares of its common stock.


stock repurchase

Firm buys back stock from its shareholders.


Targeted repurchase

The firm buys back its own stock from a potential bidder, usually at a substantial
premium, to forestall a takeover attempt.


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.


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


Conditional Sale

A type of agreement to sell whereby a seller retains title to goods sold and delivered to a purchaser until full payment has been made.


Production-flow commitment

An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.


Right of Return

A sales agreement provision that permits a buyer to return products purchased
for an agreed-upon period of time.


Underwrite

To guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase
and sale agreement. To bring securities to market.



 

 

 

 

 

 

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