Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is dated as of October 6, 2005 (“Effective Date”) between
ALLIANCE FINANCIAL CORPORATION (“Corporation”), ALLIANCE BANK,N.A. (“Bank”)
(collectively “Alliance”) having a principal place of business at 120 Madison
Street, Syracuse, New York 13202, and JOHN H. WATT, JR., residing at 42 Monroe
Avenue, Pittsford, New York 14534, the (“Executive”).

 

The Corporation and the Executive desire to set forth the terms upon which the
Executive will continue to be employed by the Corporation and the Bank after the
expiration on October 6, 2005 of the Executive’s existing Employment Agreement
dated January 21, 2004.

 

1.         Definitions

 

(a)

“Cause” means a finding by the Board of Directors of the Corporation (the “Board
of Directors) that any of the following conditions exist: (i) the Executive’s
willful and continued failure to substantially perform his duties under this
Agreement (other than as a result of Disability) that is not or cannot be cured
within 30 days of Alliance giving Executive notice of the failure to perform. In
the case of termination of the Executive within 6 months after a Change in
Control, no act or failure to act will be deemed “willful” unless effected by
the Executive not in good faith and without a reasonable belief that his action
or failure to act was in or not opposed to the best interests to Alliance or its
successor; (ii) a willful act or omission by the Executive constituting
dishonesty, fraud, or other malfeasance, and any act or omission by the
Executive constituting immoral conduct, which is injurious to the financial
condition or business of Alliance; (iii) the Executive’s indictment for a felony
offense under the laws of the United States or any state; or (iv) breach by the
Executive of the restrictive covenant in Section 6(a) hereof.

 

(b)

“Change in Control” means:

 

 

(i)

any acquisition or series of acquisitions by any Person other than the
Corporation, any of its affiliates, any executive benefit plan of the
Corporation or its affiliates or any Person holding common shares of the
Corporation for or pursuant to the terms of such an executive benefit plan, that

 

 

(a)

results in that Person becoming the beneficial owner (as defined in Rule 13d-3
under the Securities Act of 1934, as amended (the “Exchange Act”)), directly or
indirectly, of securities of the Corporation representing 30% or more of either
the then outstanding shares of common stock of the Corporation (“Outstanding
Corporation Common Stock”) or the combined voting power of the Corporation’s
then outstanding securities entitled to then vote in the election of the
Corporation’s directors (“Outstanding Corporation Voting Securities”) except
that any such acquisition of Outstanding Corporation Voting Securities will not
constitute a Change in Control while that Person does not exercise voting power
of its Outstanding Corporation Voting Stock or otherwise exercise control with
respect to any matter concerning or affecting the Corporation, or Outstanding

 

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Corporation Voting Securities, and promptly sells, transfers, assigns or
otherwise disposes of that number of shares of Outstanding Corporation Common
Stock necessary to reduce its beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of the Outstanding Corporation Common Stock to below
30%;

 

 

(b)

would be required to be reported in response to Item 5.01 of the Current Report
on Form 8-K, pursuant to Section 13 or 15(d) of the Exchange Act.

 

 

(ii)

At any time when, during any period not longer than 24 consecutive months,
individuals who at the beginning of the period constitute the Board of Directors
cease to constitute a majority of the board, unless the election or nomination
for the election by the Corporation’s shareholders of each new board member was
approved by a vote of at least 2/3 of the board members still in office who were
board members at the beginning of that period (including, for these purposes,
new members whose election or nomination was so approved);

 

 

(iii)

approval by the shareholders of the Corporation of:

 

 

(a)

a dissolution or liquidation of the Corporation,

 

 

(b)

a sale of substantially all of the assets or earning power of the Corporation o
an unrelated party,

 

 

(c)

an agreement to merge or consolidate or otherwise reorganize, with or into one
or more unrelated Persons, as a result of which less than 75% of the outstanding
securities of the surviving or resulting entity are or will be owned by the
shareholders of the Corporation immediately before such merger, consolidation or
reorganization,

 

 

(iv)

a tender offer is made for 30% or more of the Outstanding Corporation Voting
Securities and shareholders owning beneficially or of record more than 30% or
more of the Outstanding Corporation Voting Securities have tendered or offered
to sell their shares pursuant to that tender offer, at the time those shares
have been accepted by the tender offer; provided, however, that

 

 

(v)

a Change in Control will not be deemed to have occurred under any of the
preceding subparagraphs if the action (agreement, acquisition or other) is
approved by a majority of the Board of Directors, the Corporation is the
resulting entity, and at least 51% of the ownership of voting control of the
Corporation remains unchanged from the ownership immediately prior to such
action.

 

(c)

“Disability” means:

 

Long term disability as defined in Alliance’s long term disability policy
covering the Executive or if not so defined in such a plan than by a
determination by a qualified independent physician selected by the Executive and
Alliance which such determination shall be deemed to be final. In the event of
Disability the Executive will cease to be employed on the last day of the month
in which the Executive’s disability is determined in writing.

(d)

“Good Reason” means any of the following circumstances:

 

 

(i)

A significant reduction in the scope of the Executive’s duties.

 

 

(ii)

Removal from, or failure to re-elect the Executive to the position of Executive
Vice President of Alliance’s ultimate parent entity.

 

 

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(iii)

A material breach of this Agreement by Alliance that is not or cannot be cured
within 30 days of the Executive giving notice of the breach.

 

 

(iv)

A Constructive Termination occurs within twelve months subsequent to the
occurrence of a Change of Control.

 

 

(v)

The Executive no longer reports directly to the Chief Executive Officer of the
Corporation or its successor

 

 

(e)

“Person” has the meaning given to that term in Sections 13 (d) and 14(d) of the
Exchange Act, but excluding any Person described in and satisfying the
conditions of Rule 13 d-1(b)(1) of Section 13.

 

 

(f)

“Constructive Termination” shall mean Termination of Executive’s employment by
the Executive subsequent to the occurrence of: (A) a significant change in the
nature or scope of the Executive’s authority (such as a change in his status or
authority as an officer of the ultimate parent corporation in a corporate group)
from that prior to a Change of Control, (B) any reduction in the Executive’s
total compensation (including bonuses and benefits) from that prior to a Change
or Control, or (C) a change in the general location where the Executive is
required to perform services from that prior to a Change of Control.

 

2.

Alliance employs the Executive, and the Executive accepts employment upon the
terms and conditions of this Agreement as Executive Vice President of the
Corporation and of the Bank, in full charge of the operation of the businesses
assigned to the Executive from time to time and including without limitation as
of the date hereof the Bank’s commercial, trust and investment management and
leasing businesses. In addition the Executive will engage in certain strategic
planning duties on behalf of the Corporation. The foregoing employment is
subject to the provisions of the by-laws of Alliance in respect of the duties
assigned from time to time by the Boards of Directors, and also subject at all
times to the control of the Boards of Directors. Subject to the yearly election
by the Board of Directors in the exercise of their judgment and consistent with
other provisions of this Agreement, the Executive will continue to be elected to
the position of Executive Vice President of both the Corporation and the Bank.
The Executive will perform and discharge those responsibilities which are
commensurate with his position. The Executive agrees to perform his duties and
discharge his responsibilities in a faithful manner and to the best of his
ability. The Executive may not accept other gainful employment but he may become
a director, trustee or other fiduciary of other corporations, all with the prior
consent of the Boards of Directors.

 

3.

The period of employment of the Executive under this Agreement is the period
beginning on the Effective Date and ending 36 months after the Effective Date.
However on the expiration of the initial 12-month period beginning on the
Effective Date, and on the expiration of the 12-month period after that date
(that date and expiration of each 12-month period after that date is referred to
as the “Renewal Date”), unless previously terminated, the term will be
automatically extended for 12 months, unless prior to the October 1 immediately
preceding the Renewal Date Alliance gives notice to the Executive that the term
will not be extended.

 

 

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Notwithstanding the foregoing:

 

(a)

The Executive’s employment will terminate automatically upon death or Disability
of the Executive, subject to the duty of Alliance to provide reasonable
accommodation under the Americans with Disabilities Act.

 

 

(b)

Alliance, at its sole option, may terminate the employment of the Executive at
any time for any reason by delivering 60 days’ prior written notice to the
Executive,

 

 

(c)

Alliance, at its sole option, may terminate the employment of the Executive at
any time for Cause by delivering 60 days’ prior written notice to the Executive.

 

 

(d)

The Executive, at his sole option, may terminate his employment for Good Reason
by providing 60 days’ prior written notice to Alliance.

 

 

(e)

The Executive, at his sole option, may terminate his employment absent Good
Reason by providing 60 days’ prior written notice to Alliance.

 

Any notice of termination given by either party must specify the particular
termination provision of this Agreement under which notice is being given in
reasonable detail.

 

4.

Alliance shall pay the Executive for all services rendered a base salary of
$155,000 per year, payable in equal bi-weekly installments. Salary payments
shall be subject to withholding and other applicable taxes. On an annual basis,
the Compensation Committee of the Corporation’s Board of Directors will review
the base salary of the Executive to consider appropriate increases in the base
salary and make recommendations to the Corporation’s Board of Directors with
respect thereto. During the term of this Agreement the Employee will be entitled
to receive an annual cash bonus calculated pursuant to Alliance’s incentive
programs in effect from time to time. The Board of Directors, in its sole
discretion, may award bonuses to the Executive in addition to those above, as it
may from time to time determine.

 

5.

The Executive will report directly at all times to the Chief Executive Officer
of the Corporation.

 

6.

Relative to confidential information and trade secrets belonging to Alliance,
Alliance and the Executive agree as follows:

 

 

(a)

During the term of this Agreement, the Executive may have access to, and become
familiar with, various trade secrets and confidential information belonging to
Alliance. The Executive acknowledges that such confidential information and
trade secrets are owned, and shall continue to be owned, solely by Alliance.
During the term of his employment and for six months thereafter, if such
employment terminates without Cause, or for twelve months thereafter, if such
employment terminates for Cause, the Executive agrees not to use, communicate,
reveal, or otherwise make available such information for any purpose whatsoever,
or to divulge such information to any person, partnership, corporation or entity
other than Alliance or persons expressly designated by Alliance, unless the
Executive is compelled to disclose such information by judicial process.

 

 

(b)

For a period of six months after this Agreement has been terminated without
Cause, or for twelve months after this Agreement has been terminated for Cause,
regardless of whether the termination is initiated by Alliance or the Executive,
the Executive agrees that he will not, directly or indirectly, solicit any
person, company, firm or corporation who is or was a customer of Alliance during
a period of one year prior to termination of the Executive’s

 

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employment or who was solicited by the Executive during his period of
employment. The Executive agrees not to solicit such customers on behalf of
himself or any other person, firm, company or corporation.

 

 

(c)

The Executive agrees for a period of six months after termination of his
employment without Cause, or for twelve months after the termination of his
employment for Cause, he will not accept employment with a direct competitor, or
enter into direct competition with Alliance, either by himself or through any
entity owned or managed in whole or in part by the Executive anywhere within the
State of New York except for the New York City metropolitan statistical area.

 

 

(d)

The Executive acknowledges that compliance with this paragraph is necessary to
protect Alliance’s business and good will and that a breach of the clauses
contained herein may irreparably and continually damage Alliance, and that an
award of money damages may not be adequate to compensate for such harm.
Consequently, the Executive agrees that in the event he intentionally breaches
or threatens to breach any of these covenants, Alliance shall be entitled to
both a preliminary or permanent injunction, without the posting of bond or other
security, in order to prevent continuation of such harm and money damages,
insofar as they can be determined, including, without limitation, all reasonable
costs and attorney’s fees incurred by Alliance in enforcing the provisions of
this Agreement. Nothing in this Agreement, however, shall prohibit Alliance from
also pursuing any other remedy.

 

7.

Alliance shall provide, and the Executive shall be entitled to receive, the
benefits, including without limitation, health and medical benefit plans, any
pension, profit sharing and retirement plans, and any insurance policies or
programs offered to executives of Alliance from time to time provided to all
executives. In addition to the above benefits, the Executive shall be entitled
to receive from Alliance, and Alliance shall provide to the Executive the
following:

 

 

(a)

The use of an automobile provided by Alliance. All normal expenses incurred in
connection with the purchase or lease and business use of such automobile shall
be borne by Alliance. The automobile shall be selected by the Executive with the
concurrence of Alliance. The Executive shall take proper care of such vehicle,
and shall be responsible for all damage to the same resulting from any misuse or
neglect. Alliance shall also, at its own expense, provide comprehensive
insurance coverage for the vehicle, naming the Executive as a named insured.
Upon termination of employment for any reason whatsoever, the Executive shall
deliver the automobile to Alliance at Alliance’s place of business.

 

 

(b)

Membership fees in a private club to be selected by the Executive with the
concurrence of Alliance.

 

 

(c)

Four weeks of paid vacation per year.

 

8.

Alliance will provide the following benefits upon termination of the Executive’s
employment, in each case subject to applicable withholding requirements.

 

 

(a)

Upon termination of his employment by the Executive for Good Reason or
termination of the Executive’s employment by Alliance (or its successor) for any
reason other than death, Disability or Cause, the Executive will be entitled to
receive from Alliance an amount equal to two times his average annual taxable
compensation for the three most recent taxable years (or such shorter period of
Executive’s employment by Alliance on an annualized basis) (“Average Taxable
Compensation”) in a lump sum paid in the month following the actual termination
of employment of the Executive. The parties agree that, for purposes of this
calculation, for 2003, 2004 and 2005 Executive’s taxable compensation was
$150,000, $150,000 and $185,000, respectively. If the Executive dies prior to
such payment then such payment shall be made to his spouse, if she survives him,
and if not, to the estate of the Executive. In addition, in the event of such
termination all unvested restricted stock grants, stock options and similar
grants in favor of Executive pursuant to past existing or future compensation
plans will vest on the date of termination.

 

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(b)

Upon the termination of the Executive’s employment by the Executive absent Good
Reason or by Alliance for Cause, the Executive shall receive his salary and
fringe benefits through his termination date as well as an amount equal to his
accrued and unused vacation days in a lump sum.

 

 

(c)

Upon termination of the Executive due to Disability, the Executive shall receive
his base salary in effect on the date immediately before the Disability for the
greater of (i) the remaining term of this Agreement or (ii) 6 months, in either
case reduced by any disability insurance payments made to Executive on
Alliance-paid insurance polices. In addition Executive will receive an amount
equal to his accrued and unpaid vacation pay if terminated due to Disability.

 

 

(d)

Upon termination due to death, the Executive’s spouse, if surviving, or if not
his estate, shall receive the salary in place on the date of death through the
end of the calendar month in which the death occurred plus an amount equal to
his accrued and unpaid vacation days on a lump sum basis.

 

The Executive shall not be obligated to seek other employment or take other
action to mitigate amounts payable under this Section 8 or any other section of
this Agreement.

 

9.

Any controversy or claim arising out of or relating to, this Agreement, or its
breach, shall be settled by arbitration in the City of Syracuse, New York, in
accordance with the then governing rules of the American Arbitration
Association. Judgment upon the award rendered may be entered and enforced in any
court of competent jurisdiction.

 

10.

Any notice required or desired to be given under this Agreement shall be deemed
given, if in writing sent by Certified Mail-Return Receipt Requested to the
Executive’s residence or to the Alliance’s office to the attention of the Chief
Executive Officer, as the case may be.

 

11.

Alliance will provide the Executive with coverage under Alliance’s standard
directors and officers liability insurance policy at its expense and will
indemnify the Executive to the fullest extent permitted under and subject to the
terms and conditions of federal and state law, against all expenses and
liabilities incurred by the Executive in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of Alliance.

 

12.

Alliance will require any successor (whether by acquisition of assets, merger,
consolidation or otherwise) to all or substantially all of the operations or
assets of the Corporation or the Bank, without regard to the form of such
acquisition, to assume and agree to perform this Agreement in the same manner
and to the same extent that Alliance would have been required to perform if no
succession had taken place.

 

13.

Alliance’s waiver of a breach of any provision of this Agreement by the
Executive shall be operate or construed as a waiver of any subsequent breach by
the Executive. No waiver shall be valid unless in writing and signed by an
authorized officer of the Employer.

 

 

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14.

The Executive acknowledges that his services are unique and personal:
accordingly, the Executive may not assign his rights or delegate his duties or
obligations under this Agreement. Alliance’s rights and obligations under this
Agreement shall inure to the benefit of, and shall be binding upon, Alliance’s
successors and assigns.

 

15.

This Agreement contains the entire understanding of the parties except with
respect to related incentive compensation agreements and plans. Without limiting
the foregoing, this Agreement supersedes the Employment Agreement between the
parties dated January 21, 2004 and the last sentence of Section 8(a) supersedes
the terms of each restricted stock agreement between the parties. It may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.

 

16.

This Agreement may be executed in two or more counterparts, each of which shall
be deemed original, but all of which together shall constitute one and the same
instrument.

 

17.

This Agreement shall be subject to and governed by the laws of the State of New
York.

 

IN WITNESS WHEREOF, the parties hereunto executed this Agreement on November 2,
2005.

 

Alliance Financial Corporation

ALLIANCE BANK, N.A.

 

By: /s/ Jack H. Webb

 

President and Chief Executive Officer

 

 

/s/ John H. Watt. Jr.  

 

John H. Watt, Jr., Executive

 

 

 

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