Exhibit
      10.17 
	 
	EMPLOYMENT
      AGREEMENT 
	 
	
      
                 AGREEMENT
        dated January 21, 2004 between ALLIANCE FINANCIAL CORPORATION,
        having a principal place of business at 120 Madison Street, Syracuse,
        Onondaga County, New York, the “Employer”, and JOHN H. WATT
        JR., residing at 42 Monroe Avenue, Pittsford, Monroe County, New York,
        the “Employee”, as follows: 

	 
	
      
                 1.    
        The Employer employs the Employee, and the Employee accepts employment
        upon the terms and conditions of this agreement. 

      
                 2.    
        The term of this agreement shall be effective as of October 6, 2003 and
        shall terminate on October 6, 2005 unless extended by mutual agreement
        of the Employer and the Employee. 

      
                 3.    
        The Employer shall pay to the Employee for all services rendered a salary
        of $150,000.00 for the calendar year 2004, payable in equal bi-weekly
        installments. Salary payments shall be subject to withholding and other
        applicable taxes. 

      
                 4.    
        The Employee shall serve as the president of an as yet unformed subsidiary
        of Alliance Financial Corporation devoted to banking and non-banking acquisitions
        and mergers, merchant banking and investment opportunities, shall be in
        charge of the operation of said subsidiary, and shall have full authority
        and responsibility, subject to the general direction, approval and control
        of the Employer’s Board of Directors, for formulating policies and
        administering the subsidiary in all respects. The Employee may be assigned
        other senior management roles. The Employee will report directly to the
        Chairman and Chief Executive Officer of Alliance Financial Corporation
        and will be appointed a senior vice president of Affiance Financial Corporation.
        

      
                 5.    
        The Employee shall devote his entire time and attention to the Employer’s
        business. During the term of the agreement, the Employee shall not engage
        in any other business activity, regardless of whether it is pursued for
        gain or profit However, the Employee may invest his assets in other companies
        so long as they do not require the Employee’s services in the operation
        of their affairs. 

      
                 6.    
        Relative to confidential information and trade secrets belonging to the
        Employer, the Employer and the Employee agree as follows: 

	 


	a.	 	During the
      term of this agreement, the Employee may have access to, and become familiar
      with, various trade secrets and confidential information belonging to the
      Employer. The Employee acknowledges that such confidential information and
      trade secrets are owned, and shall continue to be owned, solely by the Employer.
      During the term of his employment and for six months thereafter, if employment
      terminates without cause, or for twelve months thereafter, if such employment
      terminates for cause, the Employee 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 the Employer or persons expressly designated by the Employer,
      unless the Employee 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 the Employer or the Employee, the
      Employee agrees that he will not, directly or indirectly, solicit any person,
      company, firm or corporation who is or was a customer of the Employer during
      a period of three years prior to the termination of the Employee’s
      employment or who was solicited by the Employee during his period of employment.
      The Employee agrees not to solicit such customers on behalf of himself or
      any other person, firm, company or corporation. 
	 	 	 
	c.	 	The Employee agrees
      that for a period of six months after the termination of his employment
      without cause, or for twelve


	 

      
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	 	 	months after
      the termination of his employment for cause, he will not accept employment
      with a competitor of the Employer, or enter into competition with the Employer,
      either by himself or through any entity owned or managed in whole or in
      part by the Employee within the State of New York excepting the New York
      City metropolitan statistical area.
	 	 	 
	d.	 	 The Employee acknowledges
      that compliance with this paragraph is necessary to protect the Employer’s
      business and good will and that a breach of the clauses contained herein
      may irreparably and continually damage Employer, and that an award of money
      damages may not be adequate to compensate for such harm. Consequently, the
      Employee agrees that in the event he intentionally breaches or threatens
      to breach any of these covenants, the Employer shall be entitled to both
      a preliminary or permanent injunction in order to prevent the continuation
      of such harm and money damages, insofar as they can be determined, including,
      without limitation, all reasonable costs and attorneys’ fees incurred
      by the Employer in enforcing the provisions of this agreement. Nothing in
      this agreement, however, shall prohibit the Employer from also pursuing
      any other remedy. 


	 
	           7.    
        The Employer has the right to terminate this agreement at any time for
        cause or without cause. The Employee may, without cause, terminate this
        agreement by giving sixty days’ written notice to the Employer. In
        such event, the Employee, in the discretion of the Employer, shall continue
        to render his services and shall be paid his regular compensation up to
        the date of termination. 

      
                 8.    
        The Employer shall provide, and the Employee shall be entitled to receive,
        the employee benefits provided to all employees on the same terms and
        conditions, including health insurance benefits. In addition to the above
        benefits, the Employee shall be entitled to receive from the Employer,
        and the Employer shall provide to the Employee the following: 





	 	 	 
	a.	 	The use of an automobile,
      to be provided by the Employer. All normal expenses incurred in connection
      with the purchase or lease and business use of such automobile shall be
      borne by the Employer. The automobile shall be selected by the Employee
      with the concurrence of the Employer. The Employee shall take proper care
      of such vehicle, and shall be responsible for all damage to the same resulting
      from any misuse or neglect. The Employer shall also, at its own expense,
      provide comprehensive insurance coverage for the vehicle, naming the Employee
      as a named insured. Upon termination of employment for any reason whatsoever,
      the Employee shall deliver the automobile to the Employer at the Employer’s
      place of business. 
	 	 	 
	b.	 	Membership fees in a
      private club to be selected by the Employee with the concurrence of the
      Employer. 
	 	 	 
	c.	 	A total of 3000 shares
      of Alliance Financial Corporation common stock issued on a restricted basis,
      at the market value on October 6 2003, in accordance with the Employer’s
      Long-Term Incentive Compensation Plan. 
	 	 	 
	d.	 	An individual incentive
      compensation program described in Exhibit A attached hereto covering the
      first two years of the Employee’s employment with awards based on overall
      performance of the Employee in amounts described in the separate plan document.
      
	 	 	 
	e.	 	Commencing January 1,
      2004, the Employee will be a Level I participant in the Alliance Bank, N.
      A. Short-Term Incentive Plan. 
	 	 	 
	f.	 	The Employee shall be
      entitled each year to a vacation of four weeks, during which time, his compensation
      shall be paid in full. 


	 
	           9.    
      In the event the Employee’s employment is terminated by Employer without
      cause or, subsequent to the Employer selling substantially all of its assets
      to a single purchaser, or to a group of associated purchasers or subsequent
      to at least two-thirds of the outstanding shares of the Employer being sold,
      exchanged or otherwise disposed of in one transaction, or by reason of a
      merger or consolidation of the Employer in a transaction in which the Employer’s
      shareholders receive less than 50% of the outstanding voting shares of the
      new or continuing corporation or, in the event of such a change of control,
      the Employee’s title, position or responsibilities are materially diminished,
      or the Employee no longer reports directly to the chairman and chief executive
      officer of Alliance Financial Corporation, or the Employee is assigned duties
      that are inconsistent with his title, position or responsibilities, or if
      the Employee is relocated to a place of work more than fifty miles from
      Syracuse, New York, then, and in that event, the Employee, at his option,
      shall receive a lump-


	 

      
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	sum payment of two year’s
      salary based on the salary level in effect at that time and the restrictions
      provided for in Paragraph 6 herein shall be reduced in all respects to six
      months.
      
                  10.    
        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. 

	 
	           11.    Any
      notice required or desired to be given under this agreement shall be deemed
      given, if in writing and sent by Certified Mail-Return Receipt Requested,
      to the Employee’s residence or to the Employer’s office as the
      case may be. 
	 
	           12.    
      Any notice required or desired to be given under this agreement shall be
      deemed given, if in writing and sent by Certified Mail Return Receipt Requested,
      to the Employee’s residence or to the Employer’s office as the
      case may be. 
	 
	           13.    The
      Employee acknowledges that his services are unique and personal; accordingly,
      the Employee may not assign his rights or delegate his duties or obligations
      under this agreement. The Employer’s rights arid obligations under
      this agreement shall inure to the benefit of, and shall be binding upon,
      the Employer’s successors and assigns.
	 
	           14.    This
      agreement contains the entire understanding of the parties except with respect
      to related incentive compensation agreements and plans. 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.
      
                  15.    This
        agreement may be executed in two or more counterparts, each of which shall
        be deemed an original, but all of which together shall constitute one
        and the same instrument. 

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

      
                 IN
        WITNESS WHEREOF, the parties have hereunto executed this agreement on
        January 21, 2004. 


                                                              


	 	 	 
	 	Alliance Financial Corporation 
	 	 	 
	 	 	 
	 	By	 /s/Jack H. Webb 
	 	 	——————
	 	 	 President &
      Chief Executive Officer 
	 	 	 
	 	 	 
	 	 	/s/John H. Watt, Jr.
      
	 	 	———————
	 	 	 Employee 


	 

      
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EXHIBIT
        A 

      SUPPLEMENTAL COMPENSATION AND BONUS PLAN
        

      
                 This
        Supplemental Compensation and Bonus Plan (“Plan”) has been prepared
        to document the understanding of Alliance Financial Corp. (“ALNC”)
        and its employee John H. Watt, Jr. (“Employee”) with respect
        to the terms of an individual incentive compensation plan (“Bonus”)
        the Employee will receive as inducement to become a member of the executive
        management team of ALNC. This Plan is prepared as of November 1, 2003
        and is deemed effective as of the date of the initial employment of the
        Employee. 

      
                 It
        is understood that the Employee and ALNC have agreed, subject to the conditions
        described herein, that ALNC will pay as a bonus to the Employee an amount
        equal to $100,000, paid in U.S. Dollars, on an after tax basis.
        The bonus will be paid in two installments. The first installment of $50,000
        shall be paid within the first twenty-five business days of 2004. The
        second installment of $50,000 shall be payable within the first twenty-five
        business days of 2005. The actual payments shall be “grossed up”
        for tax purposes under a formula satisfactory to ALNC and the Employee.
        The payment due in 2004 will be additionally grossed up by an amount to
        be mutually agreed upon which reflects the time value of money foregone
        by the Employee because he agreed to defer receipt of 50% of the Bonus
        until 2005. 

      
                 The
        payment of the Bonus shall be subject only to the following conditions;
        (i) the Employee shall be employed by ALNC in good standing on the day
        the payment(s) are to be paid, and (ii); the Employee shall have received
        a “Good” (or its functional equivalent) or better performance
        rating for the years ending 2003 and 2004, respectively. 

      
                 In
        the event of a change of control of ALNC where the Employee is discharged
        within six months as a result of a business reorganization, merger, consolidation
        or the like, or where the employee elects to resign within six months
        due to a reorganization that materially changes the Employee’s job
        or where the Employee no longer reports to the CEO of the surviving entity,
        the remaining bonus payments shall be paid to Employee within 10 business
        days of the final day of employment. Unless, in either case Employee is
        terminated for cause. 

      
                 The
        Bonus paid hereunder is in addition to the Employee’s participation
        in ALNC’s existing discretionary executive bonus program (“Basic
        Plan”). Bonus payments made to the Employee under the Plan shall
        have no bearing on amounts paid to the Employee under the Basic Plan or
        under any other deferred compensation arrangement now existing or created
        in the future. 

      
                 This
        Plan shall be governed under the laws of the Sate of New York. 

      
                 All
        prior agreements, whether oral or in writing with respect to the payment
        of the Bonus shall be superceded by this Plan and related Employment Agreement
        to which this Plan is attached, and shall have no binding effect. 



	 	 	 
	AGREED TO BY:	/s/ John H. Watt,
      Jr.	 
	 	—————————	 
	 	EMPLOYEE	 
	 	 	 
	AGREED TO
      BY ALLIANCE FINANCIAL CORP. 
	 	 	 
	BY: 	/s/ Jack
      H. Webb	 
	 	————————	 
	 	 	 
	ITS:	———————	 


	 

      
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