Document:

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ARROW FINANCIAL CORPORATION

DIRECTORS DEFERRED COMPENSATION PLAN

(Amendment and Restatement Effective January 1, 2009)

Purpose

Arrow Financial Corporation (the “Company”) adopted the Arrow Financial Corporation Directors Deferred Compensation Plan (the “Plan”) to provide non-employee Directors the opportunity to defer director fees and to receive the benefit of additions to their deferrals. Any deferrals under the Plan prior to January 1, 2005, and additions thereon, will continue to be subject to the terms of the Plan as in effect on October 3, 2004 and applicable law as in effect prior to January 1, 2005.  With respect to deferrals under the Plan on and after January 1, 2005, such deferrals, and the additions thereon, were administered in accordance with the Company’s good faith interpretation of compliance with Section 409A of the Code (as defined below), based on available guidance and as may have been documented in draft plan documents, forms, or communications.  Effective January 1, 2009, deferrals on or after January 1, 2005, and the additions thereon, will be administered in accordance with the terms of this restated Plan document, Section 409A and the final regulations thereunder.  

Definitions

“Affiliate” means any corporation or other business entity that from time to time is, along with the Company, a member of a controlled group of businesses, as defined in Sections 414(b) and 414(c) of the Code, provided that the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in such test.  A corporation or other business entity is an Affiliate only while a member of such group.

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

“Company” means Arrow Financial Corporation.

“Disability” means the Director is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

“ERISA” the Employee Retirement Income Security Act of 1974, as amended. 

“Separation from Service” means separation from service as a Director with the Company and its Affiliates, as the term “separation from service” is defined in Code Section 409A and the regulations thereunder (generally, a decrease in the performance of services to no more than 20% of the average for the preceding 36-month period, and disregarding leave of absences up to six months where there is a reasonable expectation the Director will return).

Eligibility

Any non-employee Director of the Company or a subsidiary of the Company may participate in the Plan.  It is intended that the amounts deferred under the Plan, and accumulated interest thereon, will not be deemed taxable income to the participating Director, and will not be deductible compensation from the standpoint of the Company, until such amounts are actually distributed.

Deferral Elections

Under the Plan, any participating Director may elect in writing on or before December 31 of any calendar year to defer receipt of all or any portion of the fees receivable by such Director in the following calendar year for serving on the Board of Directors of the Company or any subsidiary thereof or on any Committee of any such Board.  Once made, a deferral election continues to be in effect for all ensuing calendar years unless and until the participating Director, by written notice, amends the election (to defer a greater or lesser amount of compensation) or terminates the election or until such person incurs a Separation from Service.  An amendment or termination of a deferral election will take effect only as of the commencement of the ensuing calendar year.

Accounts

The Company maintains for each Director participating in the Plan a separate Plan account.  The account is credited with the dollar amount of deferrals, together with accrual of interest thereon from time to time at a rate equal to the highest rate currently being paid on individual retirement accounts by the Company’s subsidiary, Glens Falls National Bank and Trust Company.

Time and Form of Payment

When a participating Director incurs a Separation from Service for any reason, deferred amounts and accumulated interest thereon in the Director’s Plan account will be distributed to such Director in a single lump sum or in such number of equal annual installment payments not to exceed five (5) years, as such Director shall have designated in his initial deferral election under the Plan (or any updated election as permitted by the Plan).  Such lump sum payment or the first of such installment payments shall be made on the date of such Director’s Separation from Service.  However, a payment will be treated as made on the date of such Director’s Separation from Service if it is made no later than the later of (i) the 15th day of the third calendar month following the date of such Director’s Separation from Service, or (ii) a date after Separation from Service within the same calendar year in which the date of the Director’s Separation from Service occurred.  

A participating Director will be permitted one opportunity to change the form of payment initially elected under the Plan provided that (i) such election will not take effect until 12 months after the date on which the election is made; (ii) the commencement of the payment or payments must be deferred for at least 5 years after the date such payment or payments would otherwise have commenced; and (iii) such election must be made at least 12 months before the date the payment or payments would otherwise have commenced.

Disability or Financial Hardship

In the case of Disability or an unforeseeable emergency, the Board, upon written request, shall permit the immediate distribution of all or any portion of the amount in the Director’s Plan account, whether or not the Director shall have incurred a Separation from Service.  A distribution will be on account of an unforeseeable emergency if the Director or a beneficiary of the Director has incurred a severe financial hardship resulting from (i) an illness or accident of the Director or the Director’s spouse or dependent (as defined in Internal Revenue Code Section 152(a)),or beneficiary, (ii) loss of the Director’s property due to casualty, or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Director or beneficiary, as permitted under Code Section 409A and the regulations thereunder.  The distribution cannot exceed the amount required to meet such needs (including taxes reasonably anticipated as a result of  the distribution), to the extent that such hardship may not be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Director’s or Beneficiary’s assets, to the extent the liquidation of such assets would not itself cause several financial hardship, or (iii) from cancellation of the Director’s deferral election under the Plan.

Death

Upon death of a participating Director prior to full distribution of amounts in the Director’s Plan account, all remaining amounts in the Plan account shall be distributed to the beneficiary or beneficiaries designated by the Director, or in lieu of such designation to the estate of the Director, in a lump sum payment.  Such lump sum payment shall be made no later than the later of (i) the 15th day of the third calendar month following the date the Director’s death, or (ii) a date after the date of Death within the same calendar year in which the date of the Director’s death occurred.

Amendment and Termination of Plan

The Company reserved the right at any time, in its discretion to amend the Plan.  The Company, in its discretion, may terminate the Plan, and distribute all vested accrued benefits, subject to the restrictions set forth in Treas. Reg. §1.409A-3(j)(4).  A termination of the Plan must comply with the provisions of Section 409A of the Code and the regulations and guidance promulgated thereunder, including, but not limited to, restrictions on the timing of final distributions and the adoption of future deferred compensation arrangements.

Administration

The Board of the Company shall have the sole responsibility for the administration of the Plan and, except as herein expressly provided, the Board shall have the exclusive right to interpret the provisions of the Plan and to determine any question arising hereunder or in connection with the administration of the Plan, including the eligibility of any Director to participate in the Plan and the remedying of any omission, inconsistency, or ambiguity, and its decision or action in respect thereof shall be conclusive and binding upon any and all Directors, former Directors, spouses, heirs, distributees, executors, administrators, and assigns.  The Board may delegate its duties as Plan administrator to an officer or employee of the Company or one of its subsidiaries. No member of the Board or any other individual to whom administrative authority is delegated under the Plan shall be entitled to act on or decide any matters relating solely to himself or any of his rights or benefits under the Plan.

The Company shall indemnify all officers and employees assigned any powers or duties under the Plan in accordance with the terms of the Company’s Certification of Incorporation and By-Laws of the Company, as the same may be amended and restated from time to time, or by separate agreement signed by the Company.   Any individual who is employed by the Company and who is acting as agent of the Company shall serve without compensation for services as such, but all proper expenses incurred by the individual incident to the functioning of the Plan shall be paid by the Company upon submission to the Board of confirming documentation.

Non-Alienation of Benefits

No amounts payable under the Plan shall be subject in any manner to anticipation, assignment, or voluntary or involuntary alienation.  Notwithstanding the above, the Company may distribute all or a portion of a Director’s account to the extent necessary to comply with a court-approved settlement incident to divorce.  

Governing Law

The terms and provisions of the Plan shall be construed according to the principles, and in the priority, as follows:  first, in accordance with the meaning under, and which will bring the Plan into conformity with, section 409A of the Code; and secondly, in accordance with the laws of the State of New York to the extent not preempted by federal law.  The Plan shall be deemed to contain the provisions necessary to comply with such laws.  If any provision of the Plan shall be held illegal or invalid, the remaining provisions of the Plan shall be construed as if such provision had never been included. 

Funding

The Company shall be under no obligation whatsoever to fund any amounts due under the Plan.  Directors shall be treated as general, unsecured creditors of the Company with respect to amounts credited to their accounts.

Successors

The liabilities under the Plan shall be binding upon any successor, assign, or purchaser of the Company or any purchase of substantially all of the assets of the Company.

Compliance with Internal Revenue Code Section 409A

Notwithstanding any of the preceding provisions of the Plan to the contrary, no Plan provisions shall be operative to the extent it will result in the imposition of the additional tax described in Code Section 409A(a)(1)(B)(i)(II).EX-10

ARROW FINANCIAL CORPORATION

Directors’ Stock Plan

(Amendment Effective January 1, 2009)

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Purpose; Participation.

The Arrow Financial Corporation Directors’ Stock Plan (the “Plan”) permits the Board of Directors of Arrow Financial Corporation (the “Company”) to determine from time-to-time to pay some or all of the directors’ fees payable to directors of the Company and to directors of its subsidiary banks (each, a “Bank”) in the form of shares of Common Stock of the Company (“Common Stock”).  On and after January 1, 2005 through December 31, 2008, the Plan was operated in accordance with the Company’s good faith interpretation of the exemption for short-term deferrals under Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), as may have been documented in draft documents, forms or communications.  On or after January 1, 2009, the Plan will be administered in accordance with the terms of this Plan document and the short-term deferral exemption under Code Section 409A and the regulations thereunder.  

Only directors of the Company and the Banks will be eligible to participate in the Plan; directors of other subsidiaries of the Company will not be eligible to participate.  Participation by directors will be determined by the Board of Directors of the Company (the “Board”), as provided in Section 3.  Individual directors will not have the ability to opt out of the Plan or to increase or decrease their participation from the form and level of participation established by the Board from time to time.  Honorary or advisory directors may not participate.  

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Administration.

The Plan will be administered by the Board of Directors.  Subject to the express provisions set forth elsewhere in this Plan, the Board as Plan administrator will (i) determine the portion of directors’ fees, if any, payable in shares of Common Stock under the Plan and the time or times at which such shares will be distributed, (ii) oversee the distribution of shares to directors under the Plan and the maintenance of Plan accounts on behalf of directors, if and as necessary, (iii) oversee the distribution of appropriate notices and materials regarding the Plan (including materials required under applicable securities and other laws) and the filing of all appropriate documents, forms and statements by or on behalf of the Plan or the Company with regulatory agencies and governmental authorities, (iv) interpret the Plan and (v) otherwise take responsibility for the orderly operation of the Plan.  Interpretations regarding the Plan by the Board as Plan administrator will be final and binding on all directors subject to the Plan.  The Board may delegate to other parties, including officers of the Company, some or all of its duties as Plan administrator, not including those duties identified above in subparagraphs (i) and (iv) of this Section 2.

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Determination of Stock Portion of Directors’ Fees.

The Board in its sole discretion will determine from time to time the portion of directors’ fees, if any, that will be payable to directors in shares of Common Stock, as opposed to cash or any other form of compensation, subject to applicable law and the provisions of the Plan.  The portion of fees payable in Common Stock (the “Stock Portion”) may be (i) a portion or all of the annual retainer, if any, payable to directors and/or (ii) a portion or all of the meeting fees, if any, payable to directors for attendance at board or committee meetings, and may be expressed either as a percentage or as an absolute dollar amount of the retainer and/or fees.  Such determinations will be final and binding upon all directors of the Company and, in the case of Bank directors, all directors of the particular Bank.  Individual directors will have no discretion to receive greater or lesser amounts or percentages of their directors’ fees payable in Common Stock than the Stock Portion then in effect for their organization, as thus determined. The Stock Portion will be the same dollar amount or percentage for all directors of any particular participating organization (the Company or any Bank) at any given time, provided that distinctions may be made between (i) directors who also are officers (who typically do not receive directors’ fees) and directors who are not, and (ii) directors who chair board committees and directors who serve on board committees but not as chair.

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Authorized Shares; Consideration; Vesting.

The total number of shares of Common Stock authorized for distribution under the Plan was initially set at 6,000.  In 2003, the Plan was amended to authorize an additional 15,000 shares for distribution under the Plan.  In 2008, the Plan was amended to authorize an additional 30,000 for distribution under the Plan.  The number of shares of Common Stock authorized for distribution under the Plan from time to time shall be adjusted to reflect any stock split, stock dividend, or similar change in the outstanding shares of Common Stock.  No consideration will be paid or payable by directors for their receipt of such shares except for the services rendered by them as directors.  Upon distribution, all such shares will be fully vested and nonforfeitable.  No director will have a right to receive shares under the Plan prior to the distribution of such shares.  Subsequent transfers by directors of distributed shares, for value or otherwise, will not be restricted, except for any restrictions on transferability that may arise under applicable securities laws or under any particular agreement to which the distributee director may otherwise be subject.  Termination of a director’s service after distribution to such director of any shares under the Plan will not result in forfeiture of any such shares.

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Determination of Number of Shares to be Distributed.

In order to determine the number of shares of Common Stock distributable to a given director on a particular distribution date, the dollar amount of fees then distributable to such director in the form of shares of Common Stock will be divided by the “fair market value” of the Common Stock on such date, with the quotient to be expressed to four decimal places.  The “fair market value” of the Common Stock as of any particular date shall be the fair market price per share for such date, determined in the manner specified from time-to-time by the Board, taking into consideration applicable legal requirements and prevailing regulatory and industry standards.

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Distributions; Plan Accounts.

Shares will be distributed under the Plan on such date or date(s) in each fiscal year as may be determined by the Board as Plan administrator, provided however, that any Shares distributable under the Plan that relate to directors’ fees earned in any calendar year will be distributed to the directors earnings such fees no later than the March 15 immediately following such calendar year.  Distributions of shares under the Plan will be made directly into accounts maintained under the Plan for participating directors or into any accounts maintained by or on behalf of directors under any other Company-sponsored plan or plans into which such shares may be directly deposited, with the consent of such directors.  Such shares will be registered in the name of the Company or its designee, including any custodian selected for the Plan or, if deposited into another plan, in the name of the administrator or custodian of such plan, or in the name of any nominee designated by any of the foregoing.  All dividends and distributions on shares thus deposited into directors’ accounts also shall be paid into the accounts until such time as the shares are distributed out of the accounts.  As long as shares are maintained in such accounts, directors will receive periodic account statements and will have sole right to vote or direct the voting of such shares.  The Board as Plan administrator will oversee the maintenance of such accounts and the distribution of shares and dividends out of such accounts to directors.

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Amendment or Termination.

Subject to applicable law, including the applicable listing requirements of any securities exchange, the Plan may be amended, suspended or terminated at any time by the Board acting in its sole discretion, provided that no such amendment, suspension or termination will in and of itself reduce the overall level of directors’ fees payable to directors of the Company or any Bank or affect their ownership of shares previously distributed to them under the Plan.

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Miscellaneous

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Nonqualified.  The Plan is not subject to the Employee Retirement Income Security Act of 1974 and is not qualified under Section 401 of the Internal Revenue Code of 1986, as amended.

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Applicable Law; Successors.  The Plan shall be governed by and interpreted in accordance with the laws of the State of New York.  The Plan, if not previously terminated, shall be assumed by and be binding upon successors to the business and affairs of the Company, including successors by merger or by purchase of all or a majority of the Company’s assets, with such adjustments to be made by the Board in connection with any such succession as may be appropriate under the circumstances.

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