Vesting Agreement: Definition & Sample

A vesting agreement is a contract made between an employer and an employee that sets the terms and conditions for shares and share options to vest. Vesting shares are shares held by an employee that were granted either through employee stock options (ESOs) or restricted stock units (RSUs), that are not yet earned by the employee. Vesting that means the point in time where shares are earned or gained by some person.

Employers typically draft share vesting agreements to align the employee’s interest to that of the company. They are also used to ensure that key executives and talented employees can be attracted and retained.

Common Sections in Vesting Agreements

Below is a list of common sections included in Vesting Agreements. These sections are linked to the below sample agreement for you to explore.

Vesting Agreement Sample

FORM OF EMPLOYEE STOCK OPTION AGREEMENT

WITH PERFORMANCE VESTING SCHEDULE

THE PNC FINANCIAL SERVICES GROUP, INC.

2006 INCENTIVE AWARD PLAN

NONSTATUTORY STOCK OPTION AGREEMENT

1. Definitions; Grant of Option . Certain terms used in this Nonstatutory Stock Option Agreement (the “Agreement”) are defined in Annex A hereto (which is incorporated herein as part of the Agreement) or elsewhere in the Agreement, and such definitions will apply except where the context otherwise indicates.

Pursuant to The PNC Financial Services Group, Inc. 2006 Incentive Award Plan (the “Plan”) and subject to the terms of the Agreement, PNC hereby grants to Optionee an Option to purchase from PNC that number of shares of PNC common stock specified above as the “Covered Shares,” exercisable at the Option Price.

In the Agreement, “PNC” means The PNC Financial Services Group, Inc. and “Corporation” means PNC and its Consolidated Subsidiaries. Headings used in the Agreement are for convenience only and are not part of the Agreement.

2. Terms of the Option .

2.1 Type of Option . The Option is intended to be a Nonstatutory Stock Option.

2.2 Option Period . Except as otherwise set forth in Section 2.3, the Option is exercisable in whole or in part as to any Covered Shares as to which it is outstanding and has become exercisable (“vested”) at any time and from time to time through the Expiration Date as defined in Section A.18 of Annex A hereto, including the early termination provisions set forth in said definition.

To the extent that the Option or relevant portion thereof is then outstanding and the Expiration Date has not yet occurred, the Option will vest as to Covered Shares as set forth in this Section 2.2.

(a) Unless the Option has become fully vested pursuant to another subsection of this Section 2.2, the Option will become exercisable (“vest”) as follows:

(1) The Option will vest on the first date on which the Performance Condition is met where the Time Condition has been met on or prior to such date. Unless otherwise provided in another subsection of this Section 2.2: (i) the “Time Condition” will be satisfied on the 3rd anniversary of the Grant Date; and (ii) the “Performance Condition” will be met on any date when the reported closing price on the New York Stock Exchange (or such successor reporting system as PNC may select) of a share of PNC common stock at least equals 120% of the Option Price for that date and for the 4 immediately preceding trading days, as adjusted pursuant to Section 3, if applicable. The Performance Condition may not be met prior to satisfaction of the Time Condition, although it may be met simultaneously with satisfaction of the Time Condition.

(2) If not already vested at the time of Retirement of the Optionee or of termination of employment of the Optionee by the Corporation by reason of Total and Permanent Disability and not for Cause, the Option will vest thereafter in accordance with the other provisions of this Section 2.2 as if the Optionee had continued as an employee of the Corporation, if, and only if, prior to Optionee’s Termination Date, the Committee (or its delegate) in its sole discretion determines that the Option will continue in effect, be eligible for subsequent vesting and not expire on Optionee’s Termination Date in accordance with Section A.18 of Annex A hereto. In such case, the Option will continue in effect in accordance with all provisions of this Agreement other than those providing for an early Expiration Date due to termination of employment.

(3) If the Option is outstanding immediately prior to the time a Change in Control occurs, the Option will vest as to all then outstanding Covered Shares as to which it has not otherwise vested, effective as of the day immediately prior to the occurrence of the Change in Control, provided that , at the time the Change in Control occurs, Optionee is either (i) an employee of the Corporation or (ii) a former employee of the Corporation whose unvested Option, or portion thereof, is then outstanding and continues to qualify for vesting pursuant to the terms of another subsection of this Section 2.2, and provided further that the Time Condition has been satisfied on or prior to the date of such Change in Control (either pursuant to Section 2.2(a)(1)(i) or pursuant to subsection (A) of this Section 2.2(a)(3)) and the Performance Condition is met simultaneously with such Change in Control event as set forth in subsection (B) of this Section 2.2(a)(3).

(A) If (i) a Change in Control occurs prior to the 3 rd anniversary of the Grant Date and (ii) the holders of voting securities of PNC outstanding immediately prior to the Change in Control hold, upon completion of the Change in Control, voting securities representing 50% or less of the voting power in the election of directors (or members of an equivalent governing body) of the resulting or successor entity (regardless of whether such entity is PNC or an acquiring entity, including the ultimate parent entity of PNC or an entity into which PNC is merged or consolidated) and (iii) the Option is outstanding immediately prior to the time the Change in Control occurs, then for purposes of eligibility for vesting pursuant to this Section 2.2(a)(3), the Time Condition will be deemed to be satisfied effective as of the day immediately prior to the occurrence of the Change in Control.

(B) If the Option is outstanding immediately prior to the time a Change in Control occurs, then for purposes of eligibility for vesting pursuant to this Section 2.2(a)(3), the Performance Condition will be deemed to be met simultaneously with the Change in Control event if either: (i) the reported closing price on the New York Stock Exchange (or such successor reporting system as PNC may select) of a share of PNC common stock at least equals 120% of the Option Price for the date of such Change in Control event or, if such event does not occur on a trading day or if PNC common stock is no longer trading on the date of or following the Change in Control event, for the immediately preceding trading day and, in either case, for the 4 trading days immediately preceding such trading day; or (ii) in the case of a Change in Control as defined in Section A.5(b) of Annex A hereto only, if the value of the consideration being received in the Change in Control transaction in exchange for each share of PNC common stock at least equals 120% of the Option Price.

(4) If the Option is outstanding immediately prior to the time of Optionee’s termination of employment but has not yet vested and if Optionee’s employment with the Corporation is terminated (other than by reason of Optionee’s death) by the Corporation without Cause or by Optionee with Good Reason and such termination of employment occurs within the period beginning on the date of a Change in Control and ending on the date that is two years after the date of the Change in Control, then the Time Condition, if not already satisfied, will be deemed to be satisfied for purposes of this Section 2.2 as of Optionee’s Termination Date and the Option will be eligible for subsequent vesting in accordance with the other provisions of this Section 2.2 if the Performance Condition is met prior to the time the Option expires in accordance with Section A.18 of Annex A hereto.

(5) If Optionee’s employment with the Corporation is terminated (other than by reason of Optionee’s death) by the Corporation without Cause or by Optionee with Good Reason after the occurrence of a CIC Triggering Event but prior to the occurrence of a subsequent Change in Control or of a CIC Failure with

respect to the CIC Triggering Event and if the Option is outstanding but has not yet vested pursuant to any other subsection of this Section 2.2 at the time Optionee’s Termination Date occurs, then the Option will vest as to all outstanding Covered Shares as to which it has not otherwise vested if the Performance Condition is met on Optionee’s Termination Date in accordance with Section 2.2(a)(1)(ii). If the Performance Condition is met on Optionee’s Termination Date as set forth in the preceding sentence, then the Time Condition will also be deemed to be met on Optionee’s Termination Date and the Option will vest as to all outstanding Covered Shares as to which it has not otherwise vested commencing on Optionee’s Termination Date.

(b) Intentionally omitted

(c) If Optionee’s employment with the Corporation is terminated by reason of Optionee’s death, the Option will immediately vest as to all outstanding Covered Shares as to which it has not otherwise vested, and the Option may be exercised by Optionee’s properly designated beneficiary, by the person or persons entitled to do so under Optionee’s will, or by the person or persons entitled to do so under the applicable laws of descent and distribution.

(d) Intentionally omitted

(e) Intentionally omitted

(f) The Committee or its delegate may in their sole discretion, but need not, accelerate the vesting date of all or any portion of the Option subject, if applicable, to such limitations as may be set forth in the Plan.

If Optionee is employed by a Consolidated Subsidiary that ceases to be a subsidiary of PNC or ceases to be a consolidated subsidiary of PNC under generally accepted accounting principles and Optionee does not continue to be employed by PNC or a Consolidated Subsidiary, then for purposes of the Agreement, Optionee’s employment with the Corporation terminates effective at the time this occurs.

2.3 Formal Allegations of Detrimental Conduct . If any criminal charges are brought against Optionee alleging the commission of a felony that relates to or arises out of Optionee’s employment or other service relationship with the Corporation in an indictment or in other analogous formal charges commencing judicial criminal proceedings, the Committee may determine to suspend the exercisability of the Option, to the extent that the Option is then outstanding and exercisable, or to require the escrow of the proceeds of any exercise of the Option. Any such suspension or escrow is subject to the following restrictions:

(a) It may last only until the earliest to occur of the following:

(i) resolution of the criminal proceedings in a manner that constitutes Detrimental Conduct;

(ii) resolution of the criminal proceeding in one of the following ways: (A) the charges as they relate to such alleged felony have been dismissed (with or without prejudice), (B) Optionee has been acquitted of such alleged felony, or (C) a criminal proceeding relating to such alleged felony has been completed without resolution (for example, as a result of a mistrial) and the relevant time period for recommencing criminal proceedings relating to such alleged felony has expired without any such recommencement; and

(iii) termination of the suspension or escrow in the discretion of the Committee; and

(b) It may be imposed only if the Committee makes reasonable provision for the retention or realization of the value of the Option to Optionee as if no suspension or escrow had been imposed upon any termination of the suspension or escrow under clauses (a)(ii) or (iii) above.

2.4 Nontransferability; Designation of Beneficiary; Payment to Legal Representative .

(a) The Option is not transferable or assignable by Optionee.

(b) During Optionee’s lifetime, the Option may be exercised only by Optionee or, in the event of Optionee’s legal incapacity, by his or her legal representative, as determined in good faith by PNC.

(c) During Optionee’s lifetime, Optionee may file with PNC, at such address and in such manner as PNC may from time to time direct, on a form to be provided by PNC on request, a designation of a beneficiary or beneficiaries (a “properly designated beneficiary”) to hold and exercise Optionee’s stock options, to the extent outstanding and exercisable, in accordance with their respective stock option agreements and the Plan in the event of Optionee’s death.

(d) If Optionee dies prior to the full exercise or expiration of the Option and has not filed a designation of beneficiary form as specified above, the Option will be held and may be exercised by the person or persons entitled to do so under Optionee’s will or under the applicable laws of descent and distribution, as to which PNC will be entitled to rely in good faith on instructions from Optionee’s executor, administrator, or other legal representative.

(e) Any delivery of shares or other payment made or action taken hereunder by PNC in good faith to or on the instructions of Optionee’s executor, administrator, or other legal representative shall extinguish all right to payment hereunder.

3. Capital Adjustments . Except as otherwise provided in Section A.18 of Annex A hereto, upon the occurrence of a corporate transaction or transactions (including, without limitation, stock dividends, stock splits, spin-offs, split-offs, recapitalizations, mergers, consolidations or reorganizations of or by PNC (each, a “Corporate Transaction”)), the Committee shall make those adjustments, if any, in the number, class or kind of Covered Shares as to which the Option is outstanding and has not yet been exercised and in the Option Price that it deems appropriate in its discretion to reflect the Corporate Transaction(s) such that the rights of Optionee are neither enlarged nor diminished as a result of such Corporate Transaction or Transactions, including without limitation cancellation of the Option immediately prior to the effective time of the Corporate Transaction and payment, in cash, in consideration therefor, of an amount equal to the product of (a) the excess, if any, of the per share value of the consideration payable to a PNC common shareholder in connection with such Corporate Transaction over the Option Price and (b) the total number of Covered Shares subject to the Option that were outstanding and unexercised immediately prior to the effective time of the Corporate Transaction.

If, immediately following a Corporate Transaction, the Performance Condition has not yet been met but the Option does not expire, either because the Corporate Transaction is not a Change in Control or, if it is a Change in Control, because the circumstances are such that it does not expire by application of Section A.18(e) of Annex A hereto, then the Committee shall make such adjustments to the Performance Condition as are necessary to make sure that the Performance Condition is determined by reference to the common stock (or equivalent securities) of a continuing entity, either PNC or the resulting or surviving entity in the Corporate Transaction, and that the performance threshold necessary to meet the Performance Condition requires performance of the referenced securities of PNC or such other resulting or surviving entity following the Corporate Transaction essentially equivalent to the performance of PNC common stock following the date of the Corporate Transaction that would be have been necessary to meet the Performance Condition if the Corporate Transaction had not occurred.

All determinations hereunder shall be made by the Committee in its sole discretion and shall be final, binding and conclusive for all purposes on all parties, including without limitation the holder of the Option.

No fractional shares will be issued on exercise of the Option. PNC shall determine the manner in which any fractional shares will be treated.

4. Exercise of Option .

4.1 Notice and Effective Date . The Option may be exercised, in whole or in part, by delivering to PNC written notice of such exercise, in such form as PNC may from time to time prescribe, and by paying in full the aggregate Option Price with respect to that portion of the Option being exercised and satisfying any amounts required to be withheld pursuant to applicable tax laws in connection with such exercise.

In addition, notwithstanding Sections 4.2 and 4.3, Optionee may elect to complete his or her Option exercise through a brokerage service/margin account pursuant to the broker-assisted cashless option exercise procedure under Regulation T of the Board of Governors of the Federal Reserve System and in such manner as may be permitted by PNC from time to time consistent with said Regulation T.

The effective date of such exercise will be the Exercise Date. Until PNC notifies Optionee to the contrary, the form attached to the Agreement as Annex B shall be used to exercise the Option and the form attached to the Agreement as Annex C shall be used to make tax payment elections.

In the event that the Option is exercised, pursuant to Section 2.4, by any person or persons other than Optionee, such notice of exercise must be accompanied by appropriate proof of the derivative right of such person or persons to exercise the Option.

4.2 Payment of Option Price . Upon exercise of the Option, in whole or in part, Optionee may pay the aggregate Option Price (a) in cash or (b) if and to the extent then permitted by PNC, using whole shares of PNC common stock (either by physical delivery to PNC of certificates for the shares or through PNC’s share attestation procedure) having an aggregate Fair Market Value on the Exercise Date not exceeding that portion of the aggregate Option Price being paid using such shares, or through a combination of cash and shares of PNC common stock; provided , however , that shares of PNC common stock used to pay all or any portion of the aggregate Option Price may not be subject to any contractual restriction, pledge or other encumbrance and must be shares that have been owned by Optionee for at least six (6) months prior to the Exercise Date and, in the case of restricted stock, for which it has been at least six (6) months since the restrictions lapsed, or, in either case, for such other period as may be specified or permitted by PNC.

4.3 Payment of Taxes . Optionee may elect to satisfy any or all applicable federal, state, or local tax liabilities incurred in connection with exercise of the Option (a) by payment of cash, (b) if and to the extent then permitted by PNC and subject to such terms and conditions as PNC may from time to time establish, through the retention by PNC of sufficient whole shares of PNC common stock otherwise issuable upon such exercise to satisfy the minimum amount of taxes required to be withheld in connection with such exercise, or (c) if and to the extent then permitted by PNC and subject to such terms and conditions as PNC may from time to time establish, using whole shares of PNC common stock (either by physical delivery to PNC of certificates for the shares or through PNC’s share attestation procedure) that are not subject to any contractual restriction, pledge or other encumbrance and that have been owned by Optionee for at least six (6) months prior to the Exercise Date and, in the case of restricted stock, for which it has been at least six (6) months since the restrictions lapsed, or, in either case, for such other period as may be specified or permitted by PNC.

For purposes of this Section 4.3, shares of PNC common stock that are used to satisfy applicable taxes will be valued at their Fair Market Value on the date the tax withholding obligation arises. In no event will the Fair Market Value of the shares of PNC common stock otherwise issuable upon exercise of the Option but retained pursuant to Section 4.3(b) exceed the minimum amount of taxes required to be withheld in connection with the Option exercise.

4.4 Effect . The exercise, in whole or in part, of the Option will cause a reduction in the number of unexercised Covered Shares as to which the Option is outstanding equal to the number of shares of PNC common stock with respect to which the Option is exercised.

5. Restrictions on Exercise and on Shares Issued on Exercise . Notwithstanding any other provision of the Agreement, the Option may not be exercised at any time that PNC does not have in effect a registration statement under the Securities Act of 1933 as amended relating to the offer of shares of PNC common stock under the Plan unless PNC agrees to permit such exercise. Upon the issuance of any shares of PNC common stock pursuant to exercise of the Option at a time when such a registration statement is not in effect, Optionee will, upon the request of PNC, agree in writing that Optionee is acquiring such shares for