Exhibit 10.3

ALLIANCE FINANCIAL CORPORATION

STOCK-BASED DEFERRAL PLAN

 

1. Purpose.

This Alliance Financial Corporation Stock-Based Deferral Plan (the “Plan”)
provides Directors and certain Eligible Officers of Alliance Financial
Corporation and its affiliates with the opportunity to elect to defer
compensation received for their service and, thereby, accumulate additional
shares of Alliance Financial Corporation common stock. The Plan is intended to
constitute a deferred compensation plan that satisfies the requirements of
Section 409A of the Code.

 

2. Definitions.

As used in the Plan, the following terms have the meanings indicated:

Board means the Board of Directors of the Company.

Change in Control shall mean a change in control as defined in Internal Revenue
Code Section 409A and rules, regulations, and guidance of general application
thereunder issued by the Department of the Treasury, including –

 

  (a) Change in ownership: a change in ownership of the Company, a corporation
of which the Bank is a wholly owned subsidiary, occurs on the date any one
person or group accumulates ownership of the Company stock constituting more
than 50% of the total fair market value or total voting power of the Company
stock,

 

  (b) Change in effective control: (i) any one person or more than one person
acting as a group acquires within a 12-month period ownership of the Company
stock possessing 30% or more of the total voting power of the Company stock, or
(ii) a majority of the Board is replaced during any 12-month period by Directors
whose appointment or election is not endorsed in advance by a majority of the
Board, or

 

  (c) Change in ownership of a substantial portion of assets: a change in
ownership of a substantial portion of the Company’s assets occurs if in a
12-month period any one person or more than one person acting as a group
acquires from the Company assets having a total gross fair market value equal to
or exceeding 40% of the total gross fair market value of all of the Company’s
assets immediately before the acquisition or acquisitions. For this purpose,
gross fair market value means the value of the Company’s assets, or the value of
the assets being disposed of, determined without regard to any liabilities
associated with the assets.

Code means the Internal Revenue Code of 1986, as amended.

Committee means the Compensation Committee of the Board or any other committee
of the Board designated as the administrator of the Plan.

Company means Alliance Financial Corporation, a New York corporation.

Company Stock means the common stock of the Company.

Compensation means (i) in the case of a Participant who is a Director, the cash
retainer fees, meeting (board and committee) fees and other cash compensation
payable to the Participant in connection with his or her service on the Board or
the board of directors of any affiliate of the Company for any Plan Year and
(ii) in the case of a Participant who is an Eligible Officer, base salary and
any cash incentive compensation.

Deferred Stock Account means a bookkeeping account reflecting the investment of
a Participant’s deferred Compensation in Company Stock Units and any adjustments
thereto.

Director means a member of the Board.

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Effective Date means March 11, 2008, the date of Board approval of the Plan.

Eligible Officer means an officer of the Company or an affiliate of the Company
who is designated by the Board as eligible to defer Compensation through the
Plan.

Participant means a Director (including a former Director eligible to
participate in the Plan pursuant to Section 17) or Eligible Officer who elects
to defer Compensation through the Plan.

Plan Year means the calendar year.

Separation from Service is intended to have the same meaning as under Code
section 409A and any regulations or guidance issued under such provision.

Stock Unit means a hypothetical share of Company Stock. Each Stock Unit held in
a Deferred Stock Account shall be deemed to have the same value, from time to
time, as a share of Company Stock.

Trust means a trust created for the purposes specified in Section 10.

 

3. Participation in the Plan.

A Director serving on the Board of the Company shall be eligible to participate
in the Plan as of the Effective Date. A Director who formerly served on the
Board may participate in the Plan pursuant to Section 17. A Director who joins
the Board following the Effective Date shall be eligible to participate in the
Plan upon his or her first day of service as a Participant. An officer of the
Company or an affiliate shall participate in the Plan only upon designation as
an Eligible Officer by the Board. Participation in the Plan by a Director or
Eligible Officer shall commence upon the submission of a timely deferral
election form to the Committee in the manner prescribed below.

 

4. Deferrals.

 

  (a) A Participant may elect to defer the payment of Compensation (in
increments of 1% up to 100% or in a specified dollar amount) that would
otherwise be payable in cash during the Plan Year by completing a deferral
election. A deferral election must specify the applicable percentage of
Compensation that the Participant wishes to defer. A deferral election shall
pertain to all Compensation payable during a Plan Year.

(b) A deferral election must be in writing and be delivered to the Company prior
to the start of the Plan Year (or, in the case of an Eligible Officer who elects
to defer performance-based incentive compensation, not later than June 30 of the
year to which the compensation relates) to which it pertains; provided, however,
that a Participant who first becomes eligible to participate in the Plan on or
after the Effective Date shall have 30 days to submit a deferral election
covering Compensation payable over the balance of the Plan Year. A deferral
election shall be irrevocable and may not be amended with respect to the Plan
Year to which it pertains. A deferral election may be made only for a single
Plan Year or may be made applicable to all future Plan Years until revoked. Any
revocation or amendment of a deferral election shall be effective as of the
first day of the next Plan Year after the revocation or amendment is made.

(c) All amounts deferred under the Plan shall be held as Stock Units. With
respect to all amounts for which a deferral election is made, the Company shall
transfer such amounts to the Trust as soon as is reasonably practicable after
the time when the Compensation otherwise would have been payable in cash to the
Participant (or pursuant to a Participant’s election under Section 17) or at
such other times as the Committee, in its sole discretion, shall determine.
Thereafter, the trustee of the Trust shall determine the number of Stock Units
to be credited to an individual Participant’s Deferred Stock Account by
reference to the total number of shares of Company Stock acquired by the Trust
with the proceeds of each transfer and the proportion that the Participant’s
Compensation included in such transfer bears to the total of all Compensation
transferred.

 

5. Stock Unit Accounting.

(a) All Stock Units credited to a Participant’s Deferred Stock Account shall be
credited with hypothetical cash dividends equal to the cash dividends that are
declared and paid on Company Stock. On each record date, the Company shall
determine the amount of cash dividends to be paid per share of Company Stock. On
the payment date of such dividend, the Company shall credit an equal amount of
hypothetical cash dividends to each Stock Unit. The hypothetical cash dividends
shall be converted into Stock Units by reference to the reinvestment of such
dividends by the trustee of the Trust as set forth in Section 7.

(b) Stock Units may not be sold, assigned, transferred, disposed of, pledged,
hypothecated or otherwise encumbered.

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6. Distribution of Accounts.

 

  (a) A Participant may elect the timing of distributions from the Participant’s
Deferred Stock Account. Distributions from a Participant’s Deferred Stock
Account shall commence at one of the following specified events elected by the
Participant:

 

  (i) the Participant’s Separation from Service for any reason (including
resignation or death); or

 

  (ii) a specified number of years between one year and five years after the
Participant’s Separation from Service.

In addition, a Participant may make a separate election for distributions to
commence at a Change in Control.

(b) If a Participant does not make an election under subsection (a)(ii),
distribution of the Participant’s Deferred Stock Account shall commence at
Separation from Service. Prior to Separation from Service, a Participant who has
previously elected commencement at Separation from Service (or made no previous
election) may make one subsequent election. The subsequent election must be
submitted at least twelve months prior to Separation from Service and shall take
effect twelve months after the date on which it is submitted. The subsequent
distribution election must elect the specified time under subsection (a)(ii) as
five years after Separation from Service. The Committee may establish additional
procedures, conditions, and limitations relating to the submission of a
subsequent election.

 

  (c) A Participant’s Accounts shall be distributed in a single lump sum
payment, unless the Participant elects to receive a distribution in equal annual
installments over at least two and not more than 10 years.

 

  (d) Payment of Stock Units shall be made only in whole shares of Company Stock
equal to the number of whole Stock Units. Fractional shares shall be disregarded
for distribution purposes.

 

  (e) Despite any contrary provision of this Plan, if, when the Participant’s
service terminates, the Participant is a “specified employee,” as defined in
Code Section 409A, and if any payments under Article 6 of this Agreement will
result in additional tax or interest to the Participant because of Section 409A,
the Participant shall not be entitled to the payment under Article 6 until the
earliest of (i) the date that is at least six months after termination of the
Participant’s employment for reasons other than the Participant’s death,
(ii) the date of the Participant’s death, or (iii) any earlier date that does
not result in additional tax or interest to the Participant under Section 409A.
If any provision of this Agreement would subject the Participant to additional
tax or interest under Section 409A, the Company shall reform the provision.
However, the Company shall maintain to the maximum extent practicable the
original intent of the applicable provision without subjecting the Participant
to additional tax or interest.

 

7. Trust.

 

  (a) As soon as practicable after the Effective Date, the Company shall
establish a trust for the purposes set forth in this Plan. The Company shall
from time to time transfer to the Trust cash in an amount equal to Participants’
deferred Compensation (including amounts transferred pursuant to a Participant’s
election under Section 17) for the purpose of acquiring shares of Company Stock.
In no event shall the Company issue or contribute shares of Company Stock
directly to the Trust.

 

  (b) The Trust and its assets shall remain subject to the claims of the
Company’s creditors. All benefit obligations under this Plan shall be paid from
the general assets of the Company, which shall include the assets of the Trust
in the event of the Company’s insolvency. Any interest that the Participant may
be deemed to have under this Plan may not be sold, hypothecated or transferred
(including, without limitation, transfer by gift), except by will or the laws of
descent and distribution. Shares issued to the Trust shall be issued in the name
of the trustee. The trustee shall invest all cash dividends on Company Stock in
additional shares of Company Stock. Unless otherwise determined by the
Committee, a Participant shall have the right to direct the trustee as to the
voting of the number of shares of Company Stock equal to the aggregate number of
Stock Units in the Participant’s Deferred Stock Account.

 

  (c) The Company shall bear all expenses associated with the acquisition of
Company Stock by the Trust and the maintenance of the Trust

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8. No Acceleration of Benefits.

Notwithstanding any other provision in this Plan to the contrary, the time or
schedule for any payment of a Participant’s Deferred Stock Account under this
Plan shall not be accelerated under any circumstances.

 

9. Effect of Stock Dividends and Other Changes to Company Stock.

In the event of a stock dividend, stock split or combination of shares,
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company’s capital stock, the number and kind of shares of
Company Stock to be subject to the Plan and the maximum number of shares which
are authorized for distribution under the Plan shall be appropriately adjusted
by the Board, whose determination shall be binding on all persons.

 

10. Interpretation and Administration of the Plan.

The Committee shall administer, construe and interpret the Plan. Any decision of
the Committee with respect to the Plan shall be final, conclusive and binding
upon all Participants. The Committee may act by a majority of its members. The
Committee may authorize any member of the Committee or any officer of the
Company to execute and deliver documents on behalf of the Committee. The
Committee may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for action taken in good faith in reliance upon the
advice of counsel. The Committee may designate an officer of the Company to be
authorized to take or cause to be taken such actions of a ministerial nature as
necessary to effectuate the intent and purposes of the Plan, including issuing
Company Stock for the Plan, maintaining records of the Plan, and arranging for
distributions in accordance with this Plan document. The Committee shall
interpret this Plan for all purposes in accordance with Code Section 409A and
the regulations thereunder and any provision of the Plan shall be deemed
modified to the extent necessary to comply with Code Section 409A and the
regulations thereunder.

 

11. Term of the Plan.

The Plan shall become effective as of the Effective Date and continue in effect
unless terminated by action of the Board. Any termination of the Plan by the
Board shall not alter or impair any of the rights or obligations for any benefit
previously deferred under the Plan.

 

12. Termination or Amendment of the Plan.

The Board may suspend or terminate the Plan or revise or amend the Plan in any
respect; provided, any amendment or termination of the Plan shall not adversely
affect a Participant with respect to any benefit previously deferred under the
Plan; provided, however, that approval of an amendment to the Plan by the
stockholders of the Company shall be required to the extent, if any, that
stockholder approval of such amendment is required by applicable law, rule or
regulation.

 

13. Rights Under the Plan.

The Plan shall not constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain any person as a Director or
employee for any period of time.

 

14. Beneficiary.

A Participant may designate in writing delivered to the Committee, one or more
beneficiaries (which may include a trust) to receive any distributions under the
Plan after the death of the Participant. If a Participant fails to designate a
beneficiary, or no designated beneficiary survives the Participant, any payments
to be made with respect to the Participant after death shall be made to the
personal representative of the Participant’s estate.

 

15. Notice.

All notices and other communications required or permitted to be given under
this Plan shall be in writing and shall be deemed to have been duly given if
delivered personally or mailed first class, postage prepaid, as follows: (i) if
to the Company—at its principal business address to the attention of the
Chairman of the Committee; (ii) if to any Participant—at the last address of the
Participant known to the sender at the time the notice or other communication is
sent.

 

16. Construction.

The Plan shall be construed and enforced according to the laws of the State of
New York, unless federal law applies. All transactions under this Plan shall
also be subject to compliance with applicable securities laws. Reference to one
gender includes the other, and references to the singular and plural include
each other.

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17. Special Transfer Rule.

A Participant who, as of the Effective Date, is a participant in the Alliance
Financial Corporation Amended and Restated Directors Compensation Deferral Plan
(the “prior plan”) (including a former Director who as of the Effective Date has
not received a distribution of all benefits due under the prior plan) may elect
not later than 30 days after the Effective Date to effect a one-time transfer to
this Plan of all or any portion of the amounts accrued by the Company as of
March 11, 2008 with respect to the Participant’s benefits under such plan. All
transferred amounts shall be treated in the same manner as any other
compensation deferred under this Plan and shall, for all purposes, be subject to
the provisions of this Plan. A Participant who elects to make a transfer from
the prior plan shall acknowledge in writing at the time of election that the
Participant’s participation in the prior plan shall cease effective with such
transfer. Notwithstanding anything in this Plan or the prior plan to the
contrary, a Participant who was formerly a Director and who (i) is in pay status
under the prior plan and (ii) elects to transfer the remaining balance of his
account to this Plan shall continue to receive installment payments in
accordance with his election under the prior plan and based on the value of such
payments when made under the prior plan.