Exhibit 10.5

AMENDED AND RESTATED

SUPPLEMENTAL RETIREMENT AGREEMENT

THIS SETS FORTH an amended and restated Agreement to provide supplemental
retirement income, made and entered into this 28th day of November, 2006, by and
between ALLIANCE FINANCIAL CORPORATION, a New York corporation and registered
bank holding company (“Corporation”) and ALLIANCE BANK, N.A., a national banking
institution and a wholly-owned subsidiary of the Corporation (hereinafter
referred to as the “Bank”), and JACK H. WEBB, who resides at
                                         (hereinafter referred to as the
“Employee”).

W I T N E S S E T H :

WHEREAS, the parties previously entered a Supplemental Retirement Agreement on
May 1, 2000 (the “Prior Agreement”); and

WHEREAS, the provisions of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) require modifications to the Prior Agreement; and

WHEREAS, the parties wish to restate the Prior Agreement to incorporate such
modifications, which restatement below shall be referred to herein as “the
Agreement”.

NOW, THEREFORE, in consideration of foregoing and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
amend and restate the Prior Agreement to read as follows:

1.        Supplemental Retirement Benefit.   In partial consideration for
Employee’s past services to the Bank, and subject to the other terms and
conditions of this Agreement, the Bank shall pay Employee an annual benefit
(“Supplemental Retirement Benefit”) equal to the excess of (a) 70% of Employee’s
Final Average Compensation over (b) Employee’s Other Retirement Benefits
determined as of the Determination Date; such benefit to be paid in the form of
a straight life annuity in monthly installments for Employee’s life, with the
last payment made in the month preceding Employee’s death.

2.        Definitions.   For purposes of this Agreement:

(a)        “Final Average Compensation” shall mean the annualized average of
Employee’s monthly base salary actually paid by the Bank over the thirty-six
(36) consecutive months prior to Employee’s termination of employment;

(b)        “Other Retirement Benefits” shall mean the sum of:

(1)        the annual benefit that could be provided by (A) Bank contributions
(other than Employee’s elective deferral contributions) made on Employee’s

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behalf under the Internal Revenue Section 401(k) plan maintained by the Bank
(and any successor or additional plan), and (B) actual earnings on contributions
described in (A), if such contributions and earnings were converted to an
actuarially equivalent benefit payable to Employee at age sixty-five (65) in the
same form as the benefit paid under this Agreement; plus

(2)        the estimated benefit payable to Employee commencing at age
sixty-five (65) pursuant to the Federal Social Security Act; plus

(3)        the annual benefit payable to Employee at age sixty-five
(65) pursuant to any other pension, profit sharing, or similar plan maintained
by any prior employer in which Employee was a participant prior to his
employment with the Bank (converted, if necessary, to an actuarially equivalent
benefit payable in the same form as the benefit paid under this Agreement) to
the extent such benefit is provided by contributions of the prior employer and
earnings on those contributions.

The amount of Other Retirement Benefits shall be determined by an actuary
selected by the Bank. The determination of the amount of such benefits shall be
made without reduction for payment of benefits prior to any stated “normal
retirement date” and without regard to whether Employee is receiving payment of
such benefits on the Determination Date. To the extent Employee receives a
payment of Other Retirement Benefits described in subparagraph (b)(1) or
(3) prior to the date the Supplemental Retirement Benefit is determined pursuant
to this Agreement, the total of such Other Retirement Benefits shall be
determined by including amounts received and assuming that such amounts earned
interest at an annual rate of 8% from the date received to the date Other
Retirement Benefits are calculated for purposes of this Agreement. Employee
shall provide such financial and other information as the Bank may reasonably
require to determine Other Retirement Benefits.

(c)        “Determination Date” shall mean the earlier of Employee’s termination
of employment or August 1, 20017 (the first day of the month following
Employee’s attainment of age sixty-five (65)).

3.        Payment Upon Change in Control.

(a)        In the event of a Change in Control while Employee is employed by the
Bank, then notwithstanding anything herein to the contrary, Employee shall be
entitled to receive payment of his Supplemental Retirement Benefit, payable in
the manner as described in Paragraph 1, but subject to a similar adjustment as
provided in Paragraph 6(c), beginning on the first day of the first month after
the earlier of Employee’s termination of employment or his attaining age
sixty-five (65).

(b)        For purposes hereof, a Change in Control occurs under any one of the
following circumstances:

 

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(1)        Change in Ownership.   A Change in Control occurs on the date that
any one person, or more than one person acting as a group (as defined in
applicable Treasury Regulations), acquires ownership of a company (either by
direct purchase or indirectly through the redemption of the company’s ownership
interests) that, together with the interest held by such person or group,
constitutes more than 50% of the total fair market value or total voting power
of the ownership interests, excluding the acquisition of additional ownership
interests by a person or more than one person acting as a group who is
considered to already own more than 50% of the total fair market value or total
voting power of such interests.

(2)         Change in Effective Control.   A Change in Control of a company
occurs on the date that either:

(A)        any one person, or more than one person acting as a group, acquires
(or has acquired during the
12-month period ending on the date of the most recent acquisition by such person
or persons) ownership of interests possessing 35% or more of the total voting
power of such ownership interests of the company; or

(B)        a majority of the members of the board of directors of the company is
replaced during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of the board of directors prior to
the date of the appointment or election; provided, that this subparagraph
(b)(2)(B) shall apply only to a company for which no other company is a majority
owner;

(3)        Change in Ownership of Substantial Assets.   A Change in Control
occurs on the date that any one person, or more than one person acting as a
group, acquires (or has acquired during the 12-month period ending on the date
of the most recent acquisition by such person or persons) assets from a company
that have a total gross fair market value of 40% or more of the total gross fair
market value of the assets of the company immediately prior to such
acquisition(s). For this purpose, gross fair market value means the value of the
assets of the company, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets. No Change in
Control under this subparagraph (b)(3) occurs when transfer of assets is made to
the owners, or entity controlled by them, of the transferring company
immediately after the transfer, as provided in Treasury Regulations.

(c)        For purposes of this Agreement, the Change in Control must relate to
(i) a company that is the employer of Employee at the time of the Change in
Control; (ii) a company that is liable for the payment of benefits under this
Agreement; (iii) a company that is a majority owner of the company described in
(i) or (ii); or (iv) any company in a chain of companies in which each company
is a majority owner of another company in the chain, ending with the company
described in (i) or (ii). A Change in Control shall not be deemed to have
occurred until a majority of the members of the Board of Directors of the
Corporation receives written certification from the Bank that one of the events
set forth in subparagraph (b) has occurred. The occurrence of an event described
in subparagraph (b) must be objectively determinable by the Administrator and,

 

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if made in good faith on the basis of information available at the time, such
determination shall be conclusive and binding on the Administrator, the Bank,
Employee and his beneficiaries for all purposes of this Agreement.

(d)        In the event of such Change in Control, this Agreement may not be
amended or terminated and any successor shall, prior to such Change in Control,
agree to be bound by the terms hereof.

4.         Termination With Cause.   Except as provided in Paragraph 3, in the
event of the termination of Employee for cause (determined pursuant to the terms
of his employment agreement with the Bank) prior to his attaining age sixty-five
(65), Employee’s rights to any deferred compensation hereunder shall be
forfeited and this Agreement shall thereupon terminate.

5.        Death.   Notwithstanding anything in this Agreement to the contrary,
no benefit shall be paid hereunder under this Agreement upon or following
Employee’s death.

6.         Time of Payment.

(a)        Distributable Events.   Payment of Employee’s Supplemental Retirement
Benefit shall be paid upon the earlier to occur of the following distributable
events:

(1)        Employee’s termination of employment with the Bank, except as
provided in Paragraphs 4 or 5; or

(2)        Employee’s attainment of age sixty-five (65).

(b)        Commencement of Payment.   Except as may otherwise be elected by
Employee pursuant to subparagraph (d) below, payment of Employee’s Supplemental
Retirement Benefit shall be paid by the Bank commencing (i) on the first day of
the seventh month following Employee’s termination of employment with the Bank
or (ii) on the first day of the first month following his attaining age
sixty-five (65) if that is the distributable event.

(c)        Reduction for Early Retirement.   If payment of Employee’s
Supplemental Retirement Benefit commences before August 1, 2017, the amount of
such benefit shall equal the product obtained by multiplying (i) the
Supplemental Retirement Benefit calculated under the terms of Paragraph 1, by
(ii) a fraction, the numerator of which shall be the number of complete months
of Employee’s employment with the Bank (using May 1, 2000 as Employee’s
employment commencement date), and the denominator of which is 207 (being the
number of complete months of employment Employee would have had if he remained
employed by the Bank through his 65th birthday).

 

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(d)        Delay in Payment. With the consent of the Bank, Employee may delay
payment of his Supplemental Retirement Benefit, and/or elect to receive his
Supplemental Retirement Benefit in an actuarial equivalent single sum, subject
to the following requirements of this subparagraph (d) and the prohibitions of
Paragraph 7:

(1)        Employee’s election shall not take effect until at least twelve
(12) months after the date on which the election is made; and

(2)        Employee’s election must provide for the deferral of payment for a
period of five (5) years from the date such payment would otherwise have been
made. The foregoing shall be applied solely to that specific distributable event
for which Employee’s election is made.

(e)        If payment of the Supplemental Retirement Benefit commences before
August 1, 2017 and payment is made in a single sum pursuant to subparagraph
(d) of this Paragraph 6, the reduction described in subparagraph (c) shall be
applied before any actuarial equivalent is determined under subparagraph (d).

7.        Acceleration Prohibited.   Except as expressly provided under this
Agreement and under Treasury Regulations promulgated under Code Section 409A,
the acceleration of the time or schedule of any payment due under this Agreement
is prohibited.

8.        Income, FICA and Withholding Taxes.

(a)        Disqualification.   If at any time the Bank determines that this
Agreement does not meet the requirements imposed under Code Section 409A, the
Bank shall immediately pay to Employee in a single sum an amount equal to the
amount of benefit that Employee is required to report as taxable compensation
for federal income tax purposes.

(b)        FICA Taxes and Gross Up.   Upon request by Employee, the Bank shall
immediately pay to or on behalf of Employee, as a prepayment of a portion of his
Supplemental Retirement Benefit, an amount equal to the sum of (i) the taxes
then imposed under Code Sections 3101, 3121(a) or 3121(v)(2) on amounts of
compensation deferred under this Agreement (the “FICA Amount”), plus (ii) the
total federal withholding amount under Code Section 3401, and corresponding
state and local income tax withholding amounts that are attributable to the FICA
Amount (the “initial gross-up amount”) and (iii) the additional income tax
withholdings attributable to the initial gross-up amount.

(c)        Withholdings.   The Bank shall reduce any benefit payment being made
under this Agreement by an amount the Bank deems necessary to comply with any
federal or state tax withholding requirements.

 

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9.        Actuarial Assumptions.   To the extent interest rate, mortality and/or
other assumptions are needed to determine an actuarial equivalent amount under
this Agreement, the Bank shall select such reasonable actuarial assumptions as
the Bank shall consider necessary or appropriate.

10.        Administration.   The Bank shall have the exclusive authority and
absolute and total discretion to interpret, construe and apply all of the terms
and provisions of this Agreement. The Bank’s exercise of its discretionary
authority to interpret, construe and apply the terms and provisions of this
Agreement, and all its determinations, shall be conclusive and binding upon
Employee, the Bank, the Corporation and all other persons having or claiming
interest under this Agreement, shall be entitled to deference upon review by any
court, agency or other entity empowered to review its decisions, and shall not
be overturned or set aside by any court, agency or other entity unless found to
be arbitrary, capricious or made in bad faith.

11.         Non-Alienation of Benefits.

(a)        General Restriction.   Except as otherwise provided in this Paragraph
11, no right or benefit under this Agreement shall be subject in any manner to
alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge,
attachment, charge, or encumbrance of any kind, nor in any manner be subject to
the debts or liabilities of any person, except to the extent such debt or
liability arises by reason of a fraud, embezzlement or other felonious action
against or which damages the Bank. Any attempt to so alienate or subject any
such right or benefit in violation of the foregoing, whether or not such benefit
is currently payable, shall be void. If any person shall or attempt to alienate,
sell, transfer, assign, pledge, attach, charge or otherwise encumber any amount
payable under this Agreement, or any part thereof, or if by reason of his
bankruptcy or other event happening at any time such amounts would be made
subject to his debts or liabilities or would otherwise not be enjoyed by him in
violation of the foregoing, then the Bank, in its sole discretion, may direct
that such amount be withheld and the same or any part thereof be paid or applied
to or for the benefit of such person, his spouse, children or other dependents,
or any of them in such manner and proportion as the Bank may deem proper.

(b)        Qualified Domestic Relations Order.   Notwithstanding the
prohibitions contained in subparagraph (a), all or a portion of Employee’s
benefit under this Agreement shall be paid to one or more Alternate Payees in
accordance with the terms of a Qualified Domestic Relations Order. For purposes
of this Agreement:

(1)        “Qualified Domestic Relations Order” shall mean a domestic relations
order that meets the requirements of Code Section 414(p).

(2)        “Domestic relations order” shall mean any judgment, decree or order,
including approval of a property settlement agreement, which relates to the
provision of child support, alimony payments, or marital property rights of a
spouse,

 

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former spouse, child or other dependent of Employee, and which is made pursuant
to a state domestic relations law (including community property law).

(3)        “Alternate Payee” shall mean a spouse, former spouse, child or other
dependent of Employee who is recognized by a domestic relations order as
entitled to receive all or a portion of the benefits payable with respect to
Employee.

Payment to an Alternate Payee under a Qualified Domestic Relations Order shall
be limited to concurrent payment with any portion of the Supplemental Retirement
Benefit payable to Employee, and if there remains no benefit payable to Employee
hereunder after considering the terms of the Qualified Domestic Relations Order,
payment shall only be made at such times as Employee would have been entitled to
payment hereunder had there been no Qualified Domestic Relations Order.

12.        Unsecured Creditor.   Nothing contained in this Agreement and no
action taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Bank and Employee, his designated beneficiary or any other person. Employee
shall have no interest in any fund or in any specific assets of the Bank by
reason of this Agreement. To the extent that any person acquires a right to
receive payments from the Bank under this Agreement, such right shall be no
greater than the right of any unsecured general creditor of the Bank.

13.        Claims Procedure.

(a)        Employee, if seeking payment of the any benefit hereunder, must
submit a written request to the Bank. If a claim for benefits is wholly or
partially denied, notice of the denial, prepared in accordance with subparagraph
(b), shall be furnished to Employee within a reasonable period of time, not to
exceed ninety (90) days, after receipt of the request by the Bank
(“Determination Period”), unless special circumstances require an extension of
time for processing the request. If such an extension of time is required,
written notice of the extension shall be furnished to Employee prior to the
termination of the initial Determination Period. In no event shall such
extension exceed a period of ninety (90) days from the end of the initial
Determination Period. Each extension notice shall indicate the special
circumstances requiring an extension of time and the date on which the Bank
expects to render a decision.

(b)        The Bank shall provide Employee whose request for benefits is denied
a written notice setting forth, in a manner calculated to be understood by
Employee, the following:

(1)        the specific reason(s) for the denial;

(2)        specific references to the pertinent provisions of the Agreement upon
which the denial is based;

 

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(3)        a description of any additional material or information necessary for
Employee to perfect the request and an explanation of why such material or
information is necessary;

(4)        an explanation of the review procedure as set forth in subparagraphs
(c) and (d) below, and a statement of Employee’s right to bring a civil action
in a court of law after final administrative review; and

(5)        if an internal rule, guideline, protocol or other similar criterion
was relied on in making the determination, either (A) a recitation of such rule,
guideline, protocol or other similar criterion, or (B) a statement that such
criterion was relied upon and that a copy of it will be provided free of charge
to Employee upon request.

(c)        The purpose of the review procedure set forth in this subparagraph
and subparagraph (d) is to provide a procedure by which Employee may have a
reasonable opportunity to appeal to the Bank a denial of a request for benefits.
To accomplish this purpose, Employee (or Employee’s duly authorized
representative) may (i) review pertinent documents and records; and (ii) submit
issues, documents, records and comments in writing. Employee (or Employee’s duly
authorized representative) may request a review by filing a written request for
review with the Bank at any time within sixty (60) days after receipt by
Employee of written notice of the denial of Employee’s request for benefits.

(d) A decision on review of a denied request for benefits shall be made by the
Board of Directors of the Bank, after taking into account all comments,
documents, records and other pertinent information regardless of when submitted.
It shall make a decision promptly, but not later than sixty (60) days after
receipt of the request for review, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered as
soon as possible, but not later than one hundred twenty (120) days after receipt
of the request of review. If such an extension of time for review is required,
written notice of the extension shall be furnished to Employee prior to the
commencement of the extension. The decision on review shall be in writing, shall
be written in a manner calculated to be understood by Employee, and shall
include specific reasons for the decision and specific references to the
pertinent provisions of the Agreement upon which the decision is based.

14.        Amendment; Termination.

(a)        This Agreement may be modified or amended only in writing by mutual
agreement of the parties hereto.

(b)        This Agreement may be terminated by mutual agreement of the parties
hereto.

 

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(c)        This Agreement may be terminated in the discretion of the Bank upon
any of the following events:

(i)        the dissolution of the Bank in a manner that is taxed under Code
Section 331, in which case termination must occur (if at all) within twelve
(12) months following such dissolution;

(ii)        the dissolution of the Bank with approval of a bankruptcy court
pursuant to the provisions of 11 U.S.C. 503(b)(1)(A);

(iii)        a Change in Control as defined in Paragraph 3(b) above, in which
case termination must occur within thirty (30) days prior or twelve (12) months
following such Change in Control;

(iv)        the concurrent termination of all arrangements with Employee and all
other employees of the Bank that are similar to the arrangement under this
Agreement in accordance with the conditions set out in Treasury Regulations
promulgated under Code Section 409A that permit acceleration of payment of
benefits upon termination of deferred compensation arrangements; and

(v)        such other events, and subject to such conditions, as prescribed by
Treasury Regulations promulgated under Code Section 409A.

(d)        The termination of this Agreement upon any of the events described in
subparagraph (c) above shall entitle Employee to immediate payment of the single
sum actuarial equivalent of his Supplemental Retirement Benefit, adjusted in
accordance with the provisions of Paragraph 6, with payment made as soon as
feasible after the date of such event

(e)        Except as provided in the foregoing provisions of this Paragraph, no
acceleration of the time or form of payment of any benefit under this Agreement
may occur as a result of termination of this Agreement.

15.         Binding Effect.   This Agreement shall be binding upon the parties
hereto, their heirs, executors, administrators or successors, and the assigns of
the Bank.

16.         Construction: Governing Law.

(a)        The provisions of this Agreement shall be construed after taking into
account the intentions of the parties as follows:

(1)        that this Agreement is an unfunded arrangement maintained by the Bank
primarily for the purpose of providing deferred compensation for a key executive
within the Bank’s management group and is, therefore, exempt from most of the
parts of Title I of ERISA; and

 

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(2)        that this Agreement satisfy the requirements set out in Code
Section 409A and Treasury Regulations promulgated thereunder for the effective
deferral of compensation for income tax purposes.

(b)        This Agreement shall be governed by the laws of the State of New York
except to the extent such laws are superceded by federal law.

17.        Effect of Restatement.   This restated Agreement constitutes the
entire Agreement and understanding of the parties and supercedes all prior
agreements or understandings including, without limitation, the Prior Agreement
between the parties relating to deferred compensation and/or supplemental
retirement income.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first above written.

 

/s/ Jack H. Webb

Jack H. Webb, Employee ALLIANCE FINANCIAL CORPORATION By:  

/s/ Donald H. Dew

ALLIANCE BANK, N.A. By:  

/s/ J. Daniel Mohr

 

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