Document:

Filed by Bowne Pure Compliance

Exhibit 10.30

Addendum A

The Cortland Savings and Banking Company

Third Amended Split Dollar Agreement and Endorsement

This Third Amended Split Dollar Agreement and Endorsement (this “Agreement”) is
entered into as of this third day of December, 2008 by
and between The Cortland Savings and Banking Company, an Ohio-chartered commercial bank (the
“Bank”), and Danny L. White, Senior Vice President and Chief Lending Officer of the Bank (the
“Executive”). This Agreement shall append the Split Dollar Policy Endorsement entered into on even
date herewith or as subsequently amended, by and between the aforementioned parties.

Whereas, to encourage the Executive to remain a Bank employee, the Bank and the
Executive entered into a Second Amended Split Dollar Agreement and Endorsement effective as of
December 15, 2003, providing for division of the death proceeds of a life insurance policy or
policies on the Executive’s life,

Whereas, the Bank and the Executive are entering into a Third Amended Salary
Continuation Agreement effective as of the date hereof, providing for specified retirement benefits
and amending and restating in its entirety the Second Amended Salary Continuation Agreement, which
also was entered into effective as of December 15, 2003, and

Whereas, the Bank and the Executive intend that this Third Amended Split Dollar
Agreement and Endorsement shall be attached as Addendum A to the Third Amended Salary Continuation
Agreement, amending and restating in its entirety the Second Amended Split Dollar Agreement and
Endorsement.

Now Therefore, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

Article 1

Definitions

Capitalized terms not otherwise defined in this Agreement are used herein as defined in the
Third Amended Salary Continuation Agreement dated as of the date of this Agreement between the Bank
and the Executive. The following terms shall have the meanings specified.

1.1 Administrator means the administrator described in Article 7.

1.2 Executive’s Interest means the benefit set forth in section 2.2.

1.3 Insured means the Executive.

1.4 Insurer means each life insurance carrier for which there is a Split Dollar Policy
Endorsement attached to this Agreement.

1.5 Net Death Proceeds means the total death proceeds of the Policy minus the cash surrender
value.

1.6 Policy means the specific life insurance policy or policies issued by the Insurer(s).

 

 

 

1.7 Salary Continuation Agreement means the Third Amended Salary Continuation Agreement dated
as of the date of this Agreement between the Bank and the Executive, as the same may hereafter be
amended.

1.8 Split Dollar Policy Endorsement means the form required by the Administrator or the
Insurer to indicate the Executive’s interest, if any, in a Policy on such Executive’s life.

Article 2

Policy Ownership/Interests

2.1 Bank Ownership. The Bank is the sole owner of the Policy and shall have the right to
exercise all incidents of ownership. The Bank shall be the beneficiary of the remaining death
proceeds of the Policy after the Executive’s interest is paid according to section 2.2 below.

2.2 Death Benefit. Provided the Executive’s death occurs both before the Executive’s
Separation from Service and before the Executive attains age 65, at the Executive’s death the
Executive’s beneficiary designated in accordance with the Split Dollar Policy Endorsement shall be
entitled to Policy proceeds in an amount equal to the lesser of (x) 100% of the Net Death Proceeds
or (y) $390,812 (the lesser of the amounts specified in clauses (x) and (y) being referred to in
this Agreement as the “Executive’s Interest”). The Executive’s Interest shall be extinguished at
the earlier of the date of the Executive’s Separation from Service or the date the Executive
attains age 65, and the Executive’s beneficiary shall be entitled to no benefits under this
Agreement for the Executive’s death occurring thereafter. The Executive shall have the right to
designate the beneficiary of the Executive’s Interest.

2.3 Option to Purchase. Upon termination of this Agreement, the Bank shall not sell,
surrender, or transfer ownership of the Policy without first giving the Executive or the
Executive’s transferee the option to purchase the Policy for a period of 60 days from written
notice of such intention. The purchase price shall be an amount equal to the cash surrender value
of the Policy.

2.4 Comparable Coverage. The Bank may replace the Policy with a comparable insurance policy
to cover the benefit provided under this Agreement, in which case the Bank and the Executive shall
execute a new Split-Dollar Policy Endorsement for the comparable insurance policy.

2.5 Internal Revenue Code Section 1035 Exchanges. The Executive recognizes and agrees that
the Bank may after this Agreement is adopted wish to exchange the Policy of life insurance on the
Executive’s life for another contract of life insurance insuring the Executive’s life. Provided
that the Policy is replaced (or intended to be replaced) with a comparable policy of life
insurance, the Executive agrees to provide medical information and cooperate with medical
insurance-related testing required by a prospective insurer for implementing the Policy or, if
necessary, for modifying or updating to a comparable insurer.

 

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Article 3

Premiums

3.1 Premium Payment. The Bank shall pay any premiums due on the Policy.

3.2 Economic Benefit. The Administrator shall annually determine the economic benefit
attributable to the Executive based on the life insurance premium factor for the Executive’s age
multiplied by the aggregate death benefit payable to the Executive’s beneficiary. The “life
insurance premium factor” is the minimum factor applicable under guidance published pursuant to
Treasury Reg. section 1.61-22(d)(3)(ii) or any subsequent authority.

3.3 Imputed Income. The Bank shall impute the economic benefit to the Executive on an annual
basis by adding the economic benefit to the Executive’s W-2, or if applicable, Form 1099.

Article 4

Assignment

The Executive may irrevocably assign without consideration all of the Executive’s interest in
the Policy and in this Agreement to any person, entity, or trust established by the Executive or
the Executive’s spouse. If the Executive transfers all of the Executive’s interest in the Policy,
all of the Executive’s interest in the Policy and in the Agreement shall be vested in the
Executive’s transferee, who shall be substituted as a party hereunder and the Executive shall have
no further interest in this Agreement.

Article 5

Insurer

The Insurer shall be bound by the terms of the Policy only. Any payments the Insurer makes or
actions it takes in accordance with the Policy shall fully discharge it from all claims, suits, and
demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice
of the provisions of this Agreement.

Article 6

Claims and Review Procedures

6.1 Claims Procedure. Any person or entity who has not received benefits under this Agreement
that he or she believes should be paid (the “claimant”) shall make a claim for benefits as follows
—

	 	6.1.1	 	Initiation — written claim. The claimant initiates a claim by submitting to the
Administrator a written claim for benefits. If the claim relates to the contents of a
notice received by the claimant, the claim must be made within 60 days after the notice was
received by the claimant. All other claims must be made within 180 days after the date of
the event that caused the claim to arise. The claim must state with particularity the
determination desired by the claimant.
	 
	 	6.1.2	 	Timing of Administrator response. The Administrator shall respond to the claimant
within 90 days after receiving the claim. If the Administrator determines that special
circumstances require additional time for processing the claim, the Administrator can extend
the response period by an additional 90 days by notifying the claimant in writing, before
the end of the initial 90-day period, that an additional period is required. The notice of
extension must set forth the special circumstances and the date by which the Administrator
expects to render its decision.

 

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	 	6.1.3	 	Notice of decision. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator shall
write the notification in a manner calculated to be understood by the claimant. The
notification shall set forth —

	 	(a)	 	The specific reasons for the denial,
	 
	 	(b)	 	A reference to the specific provisions of this Agreement on which the
denial is based,
	 
	 	(c)	 	A description of any additional information or material necessary for
the claimant to perfect the claim and an explanation of why it is needed,
	 
	 	(d)	 	An explanation of the Agreement’s review procedures and the time limits
applicable to such procedures, and
	 
	 	(e)	 	A statement of the claimant’s right to bring a civil action under ERISA
section 502(a) after an adverse benefit determination on review.

6.2 Review Procedure. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows —

	 	6.2.1	 	Initiation — written request. To initiate the review, the claimant must file with the
Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
	 
	 	6.2.2	 	Additional submissions — information access. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information relating
to the claim. Upon request and free of charge, the Administrator shall also provide the
claimant reasonable access to and copies of all documents, records, and other information
relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.
	 
	 	6.2.3	 	Considerations on review. In considering the review, the Administrator shall take
into account all materials and information the claimant submits relating to the claim,
without regard to whether the information was submitted or considered in the initial benefit
determination.
	 
	 	6.2.4	 	Timing of Administrator response. The Administrator shall respond in writing to the
claimant within 60 days after receiving the request for review. If the Administrator
determines that special circumstances require additional time for processing the claim,
the Administrator can extend the response period by an additional 60 days by notifying the
claimant in writing before the end of the initial 60-day period that an additional period is
required. The notice of extension must set forth the special circumstances and the date by
which the Administrator expects to render its decision.

 

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	 	6.2.5	 	Notice of decision. The Administrator shall notify the claimant in writing of its
decision on review. The Administrator shall write the notification in a manner calculated
to be understood by the claimant. The notification shall set forth —

	 	(a)	 	The specific reasons for the denial,
	 
	 	(b)	 	A reference to the specific provisions of the Agreement on which the
denial is based,
	 
	 	(c)	 	A statement that the claimant is entitled to receive, upon request and
free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA regulations)
to the claimant’s claim for benefits, and
	 
	 	(d)	 	A statement of the claimant’s right to bring a civil action under ERISA
section 502(a).

Article 7

Administration of Agreement

7.1 Administrator Duties. This Agreement shall be administered by an Administrator, which
shall consist of the Board or such committee as the Board shall appoint. The Executive may not be
a member of the Administrator. The Administrator shall have the discretion and authority to (x)
make, amend, interpret, and enforce all appropriate rules and regulations for the administration of
this Agreement and (y) decide or resolve any and all questions that may arise, including
interpretations of this Agreement.

7.2 Agents. In the administration of this Agreement the Administrator may employ agents and
delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.

7.3 Binding Effect of Decisions. The decision or action of the Administrator concerning any
question arising out of the administration, interpretation, and application of this Agreement and
the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement.

7.4 Indemnity of Administrator. The Bank shall indemnify and hold harmless the members of the
Administrator against any and all claims, losses, damages, expenses, or liabilities arising from
any action or failure to act with respect to this Agreement, except in the case of willful
misconduct by the Administrator or any of its members.

7.5 Information. To enable the Administrator to perform its functions, the Bank shall supply
full and timely information to the Administrator on all matters relating to the date
and circumstances of the retirement, death, or Separation from Service of the Executive, and such
other pertinent information as the Administrator may reasonably require.

 

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Article 8

Miscellaneous

8.1 Amendment and Termination of Agreement. This Agreement may be amended or terminated
solely by a written agreement signed by the Bank and the Executive. However, this Agreement shall
terminate upon the first to occur of (v) surrender, lapse, or other termination of the Policy by
the Bank, or (w) distribution of the death benefit proceeds in accordance with section 2.2 above,
or (x) termination of the Salary Continuation Agreement under Article 5 of the Salary Continuation
Agreement, or (y) the Executive’s Separation from Service, or (z) the date the Executive attains
age 65.

8.2 Binding Effect. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, administrators, and transferees, and any Policy beneficiary.

8.3 No Guarantee of Employment. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.

8.4 Successors; Binding Agreement. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.

8.5 Applicable Law. This Agreement and all rights hereunder shall be governed by and
construed according to the laws of the State of Ohio, except to the extent preempted by the laws of
the United States of America.

8.6 Entire Agreement. This Agreement and the Salary Continuation Agreement constitute the
entire agreement between the Bank and the Executive concerning the subject matter. No rights are
granted to the Executive under this Agreement other than those specifically set forth. This
Agreement amends and restates in its entirety the December 15, 2003 Second Amended Split Dollar
Agreement and Endorsement.

8.7 Severability. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and each such other provision
shall continue in full force and effect to the full extent consistent with law. If any provision
of this Agreement is held invalid in part, such invalidity shall not affect the remainder of the
provision not held invalid, and the remainder of the provision together with all other provisions
of this Agreement shall continue in full force and effect to the full extent consistent with law.

 

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8.8 Headings. Caption headings and subheadings herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of this Agreement.

8.9 Notices. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.

In Witness Whereof, the Executive and a duly authorized representative of the Bank
have executed this Agreement as of the date first written above.

	 	 	 	 	 	 	 	 	 
	Executive:	 	Bank:	 	 
	 	 	The Cortland Savings and Banking Company	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Danny L. White	 	 	 	Lawrence A. Fantauzzi	 	 
	 

	 	 	 	Title:
	 	President and Chief Executive Officer	 	 

Agreement to Cooperate with Insurance Underwriting Incident to Internal Revenue
Code section 1035 Exchange

I acknowledge that I have read the Third Amended Split Dollar Agreement and Endorsement and
agree to be bound by its terms, particularly the covenant on my part set forth in section 2.5 of
the Third Amended Split Dollar Agreement and Endorsement to provide medical information and
cooperate with medical insurance-related testing required by an insurer to issue a comparable
insurance policy to cover the benefit provided under this Third Amended Split Dollar Agreement and
Endorsement.

	 	 	 	 	 
	 

Witness

	 	 

Danny L. White
	 	 

 

7

 

Split Dollar Policy Endorsement

Insured: Danny L. White

Insurer: Security Life of Denver

Policy No. 1567995

According to the terms of The Cortland Savings and Banking Company Third Amended Split Dollar
Agreement and Endorsement dated as of December 3, 2008,
the undersigned Owner requests that the above-referenced policy issued by the Insurer provide for
the following beneficiary designation and limited contract ownership rights to the Insured:

1. Upon the death of the Insured, proceeds shall be paid in one sum to the Owner, its
successors or assigns, to the extent of the Owner’s interest in the policy. It is hereby provided
that the Insurer may rely solely upon a statement from the Owner concerning the amount of proceeds
it is entitled to receive under this paragraph.

2. Any proceeds at the death of the Insured in excess of the amount paid under the provisions
of the preceding paragraph shall be paid in one sum to:

 

Primary Beneficiary, Relationship/Social Security Number

 

Contingent Beneficiary, Relationship/Social Security Number

The exclusive rights to change the beneficiary for the proceeds payable under this paragraph and to
assign all rights and interests granted under this paragraph are hereby granted to the Insured.
The sole signature of the Insured shall be sufficient to exercise the rights. The Owner retains
all contract rights not granted to the Insured under this paragraph.

3. It is agreed by the undersigned that this designation and limited assignment of rights
shall be subject in all respects to the contractual terms of the policy.

4. Any payment directed by the Owner under this endorsement shall be a full discharge of the
Insurer, and such discharge shall be binding on all parties claiming any interest under the policy.

The undersigned for the Owner is signing in a representative capacity and warrants that he or
she has the authority to bind the entity on whose behalf this document is executed.

Signed at                     , Ohio this                      day of                     , 200                    .

	 	 	 	 	 	 	 
	Insured:	 	Owner:	 	 
	 	 	The Cortland Savings and Banking Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

Danny L. White

	 	 	 	 

	 	 
	 

	 	Its:	 	 	 	 
	 

	 	 	 	 

	 	 

 

8

 

Split Dollar Policy Endorsement

Insured: Danny L. White

Insurer: Great-West Life & Annuity Insurance Company

Policy No. 85257893

According to the terms of The Cortland Savings and Banking Company Third Amended Split Dollar
Agreement and Endorsement dated as of December 3, 2008,
the undersigned Owner requests that the above-referenced policy issued by the Insurer provide for
the following beneficiary designation and limited contract ownership rights to the Insured:

1. Upon the death of the Insured, proceeds shall be paid in one sum to the Owner, its
successors or assigns, to the extent of the Owner’s interest in the policy. It is hereby provided
that the Insurer may rely solely upon a statement from the Owner concerning the amount of proceeds
it is entitled to receive under this paragraph.

2. Any proceeds at the death of the Insured in excess of the amount paid under the provisions
of the preceding paragraph shall be paid in one sum to:

 

Primary Beneficiary, Relationship/Social Security Number

 

Contingent Beneficiary, Relationship/Social Security Number

The exclusive rights to change the beneficiary for the proceeds payable under this paragraph and to
assign all rights and interests granted under this paragraph are hereby granted to the Insured.
The sole signature of the Insured shall be sufficient to exercise the rights. The Owner retains
all contract rights not granted to the Insured under this paragraph.

3. It is agreed by the undersigned that this designation and limited assignment of rights
shall be subject in all respects to the contractual terms of the policy.

4. Any payment directed by the Owner under this endorsement shall be a full discharge of the
Insurer, and such discharge shall be binding on all parties claiming any interest under the policy.

The undersigned for the Owner is signing in a representative capacity and warrants that he or
she has the authority to bind the entity on whose behalf this document is executed.

Signed at                     , Ohio this                      day of                     , 200                    .

	 	 	 	 	 	 	 
	Insured:	 	Owner:	 	 
	 	 	The Cortland Savings and Banking Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

Danny L. White

	 	 	 	 

	 	 
	 

	 	Its:	 	 	 	 
	 

	 	 	 	 

	 	 

 

9Filed by Bowne Pure Compliance

Exhibit 10.31

Severance Agreement

This Severance Agreement (this “Agreement”) is entered into effective as of this
day of December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Timothy Carney (the “Executive”), Senior Vice President and Chief
Operating Officer of The Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered bank
and wholly owned subsidiary of Cortland Bancorp.

Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and ensure that
officers and other key employees are not practically disabled from discharging their duties if a
proposed or actual transaction involving a change in control arises, and finally desiring to
provide additional inducement for the Executive to remain in the employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,

Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, and

Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Cortland Bancorp, is
contemplated insofar as Cortland Bancorp or any of its subsidiaries is concerned.

Now Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.

1. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
times the Executive’s compensation. For this purpose the Executive’s compensation means (x) the
sum of the Executive’s base salary when the Change in Control occurs, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder
shall not be reduced to account for the time value of money or discounted to present value.
Subject to section 17 of this Agreement, the payment required under this section 1(a) shall be made
within five business days after the Change in Control occurs. The Executive shall be entitled to a
payment under this section 1(a) on no more than one occasion during the term of this Agreement.

 

 

 

(b) Change in Control defined. For purposes of this Agreement the term Change in Control
means 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 —

(1) Change in ownership: a change in ownership of Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,

(2) Change in effective control: (x) any one person or more than one person acting as a
group acquires within a 12-month period ownership of Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’s board of directors is replaced during any 12-month period by directors whose
appointment or election is not endorsed in advance by a majority of Cortland Bancorp’s board
of directors, or

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

2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.

 

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(b) Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or
policies for the insurance benefits specified in section 2(a) it is not possible to continue the
Executive’s coverage on the terms specified in section 2(a), or (y) if when employment termination
occurs the Executive is a specified employee within the meaning of section 409A of the Internal
Revenue Code of 1986, if any of the continued insurance coverage benefits specified in section 2(a)
would be considered deferred compensation under section 409A, and finally if an exemption from the
six-month delay requirement of section 409A(a)(2)(B)(i) is not available for that particular
insurance benefit, instead of continued insurance coverage under section 2(a) Cortland Bancorp
shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the
present value of Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
months or the number of months until the Executive attains age 65. The lump-sum payment shall be
made within five business days after employment termination or, if the Executive is a specified
employee within the meaning of section 409A and an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available, on the first day of the seventh month after the month
in which the Executive’s employment terminates.

(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —

(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,

(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,

(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.

(d) Alternative lump-sum cash payment. If when employment termination occurs the Executive is
a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, if
any of the miscellaneous benefits specified in section 2(c) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available for that particular benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp shall pay or cause to be paid to the
Executive in a single lump sum an amount in cash equal to the present value of Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not
terminated. The lump-sum payment shall be made within five business days after employment
termination or, if the Executive is a specified employee within the meaning of section 409A and an
exemption from the six-month delay requirement of section 409A(a)(2)(B)(i) is not available, on the
first day of the seventh month after the month in which the Executive’s employment terminates.

 

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(e) Involuntary termination with Cause defined. For purposes of this Agreement, involuntary
termination of the Executive’s employment shall be considered involuntary termination with Cause if
the Executive shall have committed any of the following acts —

(1) an act of fraud, embezzlement, or theft while employed by Cortland Bancorp or the
Bank, or conviction of the Executive of or plea of no contest to a felony or conviction of
or plea of no contest to a misdemeanor involving moral turpitude, or the actual
incarceration of the Executive for 45 consecutive days or more, or

(2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of
the Executive’s duties as an officer of Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,

(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or (g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

(4) intentional wrongful disclosure of secret processes or confidential information of
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or

(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, or

(6) the occurrence of any event that results in the Executive being excluded from
coverage, or having coverage limited for the Executive as compared to other executives of
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.

 

4

 

For purposes of this Agreement, no act or failure to act on the Executive’s part shall
be deemed to have been intentional if it was due primarily to an error in judgment or
negligence. An act or failure to act on the Executive’s part shall be considered
intentional if it is not in good faith and if it is without a reasonable belief that the
action or failure to act is in Cortland Bancorp’s best interests. Any act or failure to act
based upon authority granted by resolutions duly adopted by the board of directors or based
upon the advice of counsel for Cortland Bancorp shall be conclusively presumed to be in good
faith and in Cortland Bancorp’s best interests.

(f) Voluntary termination with Good Reason defined. For purposes of this Agreement, a
voluntary termination by the Executive shall be considered a voluntary termination with Good Reason
if the conditions stated in both clauses (x) and (y) are satisfied —

(x) a voluntary termination by the Executive shall be considered a voluntary
termination with Good Reason if any of the following occur without the Executive’s advance
written consent, and the term Good Reason shall mean the occurrence of any of the following
without the Executive’s advance written consent —

1) a material diminution of the Executive’s base salary,

2) a material diminution of the Executive’s authority, duties, or
responsibilities,

3) a material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report,

4) a material diminution in the budget over which the Executive retains
authority,

5) a material change in the geographic location at which the Executive must
perform services, or

6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.

(y) the Executive must give notice to Cortland Bancorp of the existence of one or more
of the conditions described in clause (x) within 90 days after the initial existence of the
condition, and Cortland Bancorp shall have 30 days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of
the conditions described in clause (x) must occur within 24 months after the initial
existence of the condition.

 

5

 

3. Gross-Up for Taxes. (a) Additional payment to account for excise taxes. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or the Bank
(collectively, the “Total Benefits”), and if any part of the Total Benefits is subject to
the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “Excise Tax”),
Cortland Bancorp shall pay to the Executive the following additional amounts, consisting of (x) a
payment equal to the Excise Tax payable by the Executive under section 4999 on the Total Benefits
(the “Excise Tax Payment”) and (y) a payment equal to 80% of the difference between (w) a
full gross-up amount (including the Excise Tax Payment) that would provide to the Executive the
Excise Tax Payment net of all income, payroll, and excise taxes and (v) the Excise Tax Payment.
Together, the additional amounts described in clauses (x) and (y) are referred to in this Agreement
as the “Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount shall be in
addition to the benefits set forth in section 1 and section 2.

Calculating the excise tax. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax —

	 	1)	 	Determination of “parachute payments” subject to the Excise Tax: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “parachute payments” within the meaning of Internal Revenue Code section
280G(b)(2) and all “excess parachute payments” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “Accounting Firm”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,

	 	2)	 	Calculation of benefits subject to the Excise Tax: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (x) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (y) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and

	 	3)	 	Value of noncash benefits and deferred payments: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm
according to the principles of Internal Revenue Code sections 280G(d)(3) and (4).

 

6

 

Assumed marginal income tax rate. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming that any reduction under Internal Revenue Code section 68 in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of state and local income
taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).

Return of reduced Excise Tax payment or payment of additional Excise Tax. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).

If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.

(b) Responsibilities of the Accounting Firm and Cortland Bancorp. Determinations shall be
made by the Accounting Firm. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “Determination”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.

Fees and expenses of the Accounting Firm and agreement with the Accounting Firm. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.

 

7

 

Accounting Firm’s opinion. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.

Accounting Firm’s Determination is binding; underpayment and overpayment. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“Underpayment”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“Overpayment”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.

Accounting Firm conflict of interest. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).

4. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. For purposes of this Agreement the term totally disabled means that because
of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if
any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s
death or disability shall be determined solely by such benefit plans or arrangements as Cortland
Bancorp or the Bank may have with the Executive relating to death or disability, not by this
Agreement.

 

8

 

5. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. On the first
anniversary of the effective date of this Agreement and on each anniversary thereafter this
Agreement shall be extended automatically for one additional year, unless Cortland Bancorp’s board
of directors gives notice to the Executive in writing at least 90 days before the anniversary that
the term of this Agreement will not be extended. If the board of directors determines not to
extend the term, it shall promptly notify the Executive. References herein to the term of this
Agreement mean the initial term and extensions of the initial term. Unless terminated earlier,
this Agreement shall terminate when the Executive attains age 65. If the board of directors
decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force
until its term expires.

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree
that this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.

7. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp to institute
litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take
other action to deny Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. Cortland Bancorp desires that the Executive not
be required to incur the expenses associated with the enforcement of rights under this Agreement,
whether by litigation or other legal action, because the cost and expense thereof would
substantially detract from the benefits intended to be granted to the Executive hereunder.
Cortland Bancorp desires that the Executive not be forced to negotiate settlement of rights under
this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control
occurs it appears to the Executive that (x) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp or any other person has taken any action
to declare this Agreement void or unenforceable, or instituted any litigation or other legal action
designed to deny, diminish, or to recover from the Executive the benefits intended to be provided
to the Executive hereunder, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’s expense as provided in this
section 7, to represent the Executive in the initiation or defense of any litigation or other legal
action, whether by or against Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 7, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp and the Executive agree that a
confidential relationship shall exist between the Executive and that counsel. The fees and
expenses of counsel selected from time to time by the Executive as provided in this section shall
be paid or reimbursed to the Executive by Cortland Bancorp on a regular, periodic basis upon
presentation by the Executive of a statement or statements prepared by counsel in accordance with
counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be
brought or not, and whether or not incurred in trial, bankruptcy, or
appellate proceedings. Cortland Bancorp’s obligation to pay the Executive’s legal fees under this
section 7 operates separately from and in addition to any legal fee reimbursement obligation
Cortland Bancorp may have with the Executive under any separate salary continuation or other
agreement. Despite anything in this Agreement to the contrary however, Cortland Bancorp shall not
be required to pay or reimburse the Executive’s legal expenses if doing so would violate section
18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal
Deposit Insurance Corporation [12 CFR 359.3].

 

9

 

8. Withholding of Taxes. Cortland Bancorp may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as may be required by law, governmental
regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the
benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributes, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature.
Without written consent of the other party, neither party shall assign, transfer, or delegate this
Agreement or any rights or obligations under this Agreement except as expressly provided in this
section 9. Without limiting the generality of the foregoing, the Executive’s right to receive
payments hereunder is not assignable or transferable, whether by pledge, creation of a security
interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and
distribution. If the Executive attempts an assignment or transfer that is contrary to this section
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.

10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or
given if in writing and personally delivered, delivered by mail properly addressed in a sealed
envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight
delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be
properly addressed to the Executive if addressed to the address of the Executive on the books and
records of Cortland Bancorp at the time of the delivery of the notice, and properly addressed to
Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 194 West Main Street,
Cortland, Ohio 44410, Attention: Corporate Secretary.

 

10

 

11. Captions and Counterparts. The headings and subheadings used in this Agreement are
included solely for convenience and shall not affect the interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same agreement.

12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the
Executive and by Cortland Bancorp. No waiver by either party hereto at any time of any breach by
the other party hereto or waiver of compliance with any condition or provision of this Agreement to
be performed by the other party shall be deemed a waiver of other provisions or conditions at the
same or at any other time.

13. Severability. The provisions of this Agreement are severable. The invalidity or
unenforceability of any provision shall not affect the validity or enforceability of the other
provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed
to the extent (and only to the extent) necessary to make it valid and enforceable.

14. Governing Law. The validity, interpretation, construction, and performance of this
Agreement shall be governed by and construed in accordance with the substantive laws of the State
of Ohio, without giving effect to the principles of conflict of laws of the State of Ohio.

15. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp and the Executive concerning the subject matter. No rights are granted to the Executive
under this Agreement other than those specifically set forth. No agreements or representations,
oral or otherwise, expressed or implied concerning the subject matter have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.

16. No Mitigation Required. Cortland Bancorp hereby acknowledges that it will be difficult
and could be impossible (x) for the Executive to find reasonably comparable employment after
termination and (y) to measure the amount of damages the Executive suffers because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland Bancorp under this Agreement is
reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or
otherwise.

 

11

 

17. Internal Revenue Code Section 409A. Cortland Bancorp and the Executive intend that their
exercise of authority or discretion under this Agreement shall comply with section 409A of the
Internal Revenue Code of 1986. If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code of 1986, and if any
payments or benefits under this Agreement will result in additional tax or interest to the
Executive because of section 409A, then despite any provision of this Agreement to the contrary the
Executive shall not be entitled to the payments or benefits until the earliest of (x) the date that
is at least six months after termination of the Executive’s employment for reasons other than the
Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that does not
result in additional tax or interest to the Executive under section 409A. As promptly as possible
after the end of the period during which payments or benefits are delayed under this provision, the
entire amount of the delayed payments shall be paid to the Executive in a single lump sum. If any
provision of this Agreement does not satisfy the requirements of section 409A, the provision shall
nevertheless be applied in a manner consistent with those requirements. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, Cortland
Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and Cortland Bancorp shall not be required to incur any additional
compensation expense as a result of the reformed provision. References in this Agreement to
section 409A of the Internal Revenue Code of 1986 include rules, regulations, and guidance of
general application issued by the Department of the Treasury under Internal Revenue Code section
409A.

In Witness Whereof, the parties have executed this Severance Agreement as of the date
first written above.

	 	 	 	 	 	 	 	 	 
	Executive	 	 	 	Cortland Bancorp	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

Timothy Carney

	 	 	 	 	 	 

Lawrence A. Fantauzzi
	 	 
	 

	 	 	 	Its:
	 	President and Chief Executive Officer	 	 

 

12

 

Severance Agreement

This Severance Agreement (this “Agreement”) is entered into effective as of this
day of December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Lawrence A. Fantauzzi (the “Executive”), President and Chief
Executive Officer of Cortland Bancorp and The Cortland Savings and Banking Company (the “Bank”), an
Ohio-chartered bank and wholly owned subsidiary of Cortland Bancorp.

Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and ensure that
officers and other key employees are not practically disabled from discharging their duties if a
proposed or actual transaction involving a change in control arises, and finally desiring to
provide additional inducement for the Executive to remain in the employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,

Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, and

Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Cortland Bancorp, is
contemplated insofar as Cortland Bancorp or any of its subsidiaries is concerned.

Now Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.

1. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
times the Executive’s compensation. For this purpose the Executive’s compensation means (x) the
sum of the Executive’s base salary when the Change in Control occurs, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder
shall not be reduced to account for the time value of money or discounted to present value.
Subject to section 17 of this Agreement, the payment required under this section 1(a) shall be made
within five business days after the Change in Control occurs. The Executive shall be entitled to a
payment under this section 1(a) on no more than one occasion during the term of this Agreement.

 

 

 

(b) Change in Control defined. For purposes of this Agreement the term Change in Control
means 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
—

(1) Change in ownership: a change in ownership of Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,

(2) Change in effective control: (x) any one person or more than one person acting as a
group acquires within a 12-month period ownership of Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’s board of directors is replaced during any 12-month period by directors whose
appointment or election is not endorsed in advance by a majority of Cortland Bancorp’s board
of directors, or

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

2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.

 

2

 

(b) Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or
policies for the insurance benefits specified in section 2(a) it is not possible to continue the
Executive’s coverage on the terms specified in section 2(a), or (y) if when employment termination
occurs the Executive is a specified employee within the meaning of section 409A of the Internal
Revenue Code of 1986, if any of the continued insurance coverage benefits specified in section 2(a)
would be considered deferred compensation under section 409A, and finally if an exemption from the
six-month delay requirement of section 409A(a)(2)(B)(i) is not available for that particular
insurance benefit, instead of continued insurance coverage under section 2(a) Cortland Bancorp
shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the
present value of Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
months or the number of months until the Executive attains age 65. The lump-sum payment shall be
made within five business days after employment termination or, if the Executive is a specified
employee within the meaning of section 409A and an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available, on the first day of the seventh month after the month
in which the Executive’s employment terminates.

(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —

(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,

(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,

(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.

(d) Alternative lump-sum cash payment. If when employment termination occurs the Executive is
a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, if
any of the miscellaneous benefits specified in section 2(c) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available for that particular benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp shall pay or cause to be paid to the
Executive in a single lump sum an amount in cash equal to the present value of Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not
terminated. The lump-sum payment shall be made within five business days after employment
termination or, if the Executive is a specified employee within the meaning of section 409A and an
exemption from the six-month delay requirement of section 409A(a)(2)(B)(i) is not available, on the
first day of the seventh month after the month in which the Executive’s employment terminates.

 

3

 

(e) Involuntary termination with Cause defined. For purposes of this Agreement, involuntary
termination of the Executive’s employment shall be considered involuntary termination with Cause if
the Executive shall have committed any of the following acts —

(1) an act of fraud, embezzlement, or theft while employed by Cortland Bancorp or the
Bank, or conviction of the Executive of or plea of no contest to a felony or conviction of
or plea of no contest to a misdemeanor involving moral turpitude, or the actual
incarceration of the Executive for 45 consecutive days or more, or

(2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of
the Executive’s duties as an officer of Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,

(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or (g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

(4) intentional wrongful disclosure of secret processes or confidential information of
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or

(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, or

(6) the occurrence of any event that results in the Executive being excluded from
coverage, or having coverage limited for the Executive as compared to other executives of
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.

 

4

 

For purposes of this Agreement, no act or failure to act on the Executive’s part shall
be deemed to have been intentional if it was due primarily to an error in judgment or
negligence. An act or failure to act on the Executive’s part shall be considered
intentional if it is not in good faith and if it is without a reasonable belief that the
action or failure to act is in Cortland Bancorp’s best interests. Any act or failure to act
based upon authority granted by resolutions duly adopted by the board of directors or based
upon the advice of counsel for Cortland Bancorp shall be conclusively presumed to be in good
faith and in Cortland Bancorp’s best interests.

(f) Voluntary termination with Good Reason defined. For purposes of this Agreement, a
voluntary termination by the Executive shall be considered a voluntary termination with Good Reason
if the conditions stated in both clauses (x) and (y) are satisfied —

(x) a voluntary termination by the Executive shall be considered a voluntary
termination with Good Reason if any of the following occur without the Executive’s advance
written consent, and the term Good Reason shall mean the occurrence of any of the following
without the Executive’s advance written consent —

1) a material diminution of the Executive’s base salary,

2) a material diminution of the Executive’s authority, duties, or
responsibilities,

3) a material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report, including a requirement that
the Executive report to a corporate officer or employee instead of reporting
directly to the board of directors,

4) a material diminution in the budget over which the Executive retains
authority,

5) a material change in the geographic location at which the Executive must
perform services, or

6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.

(y) the Executive must give notice to Cortland Bancorp of the existence of one or more
of the conditions described in clause (x) within 90 days after the initial existence of the
condition, and Cortland Bancorp shall have 30 days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of
the conditions described in clause (x) must occur within 24 months after the initial
existence of the condition.

 

5

 

3. Gross-Up for Taxes. (a) Additional payment to account for excise taxes. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits
under any other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or
the Bank (collectively, the “Total Benefits”), and if any part of the Total Benefits is
subject to the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “Excise
Tax”), Cortland Bancorp shall pay to the Executive the following additional amounts, consisting
of (x) a payment equal to the Excise Tax payable by the Executive under section 4999 on the Total
Benefits (the “Excise Tax Payment”) and (y) a payment equal to 80% of the difference
between (w) a full gross-up amount (including the Excise Tax Payment) that would provide to the
Executive the Excise Tax Payment net of all income, payroll, and excise taxes and (v) the Excise
Tax Payment. Together, the additional amounts described in clauses (x) and (y) are referred to in
this Agreement as the “Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount
shall be in addition to the benefits set forth in section 1 and section 2.

Calculating the excise tax. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax
—

	 	1)	 	Determination of “parachute payments” subject to the Excise Tax: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “parachute payments” within the meaning of Internal Revenue Code section
280G(b)(2) and all “excess parachute payments” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “Accounting Firm”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,

	 	2)	 	Calculation of benefits subject to the Excise Tax: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (x) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (y) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and

	 	3)	 	Value of noncash benefits and deferred payments: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the
Accounting Firm according to the principles of Internal Revenue Code sections
280G(d)(3) and (4).

 

6

 

Assumed marginal income tax rate. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming that any reduction under Internal Revenue Code section 68 in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of state and local income
taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).

Return of reduced Excise Tax payment or payment of additional Excise Tax. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to
Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).

If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.

(b) Responsibilities of the Accounting Firm and Cortland Bancorp. Determinations shall be
made by the Accounting Firm. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “Determination”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.

Fees and expenses of the Accounting Firm and agreement with the Accounting Firm. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.

 

7

 

Accounting Firm’s opinion. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.

Accounting Firm’s Determination is binding; underpayment and overpayment. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“Underpayment”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“Overpayment”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.

Accounting Firm conflict of interest. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).

4. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. For purposes of this Agreement the term totally disabled means that because
of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if
any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s
death or disability shall be determined solely by such benefit plans or arrangements as Cortland
Bancorp or the Bank may have with the Executive relating to death or disability, not by this
Agreement.

 

8

 

5. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. On the first
anniversary of the effective date of this Agreement and on each anniversary thereafter this
Agreement shall be extended automatically for one additional year, unless Cortland Bancorp’s board
of directors gives notice to the Executive in writing at least 90 days before the anniversary that
the term of this Agreement will not be extended. If the board of directors determines not to
extend the term, it shall promptly notify the Executive. References herein to the term of this
Agreement mean the initial term and extensions of the initial term. Unless terminated earlier,
this Agreement shall terminate when the Executive attains age 65. If the board of directors
decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force
until its term expires.

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree
that this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.

7. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp to institute
litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take
other action to deny Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. Cortland Bancorp desires that the Executive not
be required to incur the expenses associated with the enforcement of rights under this Agreement,
whether by litigation or other legal action, because the cost and expense thereof would
substantially detract from the benefits intended to be granted to the Executive hereunder.
Cortland Bancorp desires that the Executive not be forced to negotiate settlement of rights under
this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control
occurs it appears to the Executive that (x) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp or any other person has taken any action
to declare this Agreement void or unenforceable, or instituted any litigation or other legal action
designed to deny, diminish, or to recover from the Executive the benefits intended to be provided
to the Executive hereunder, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’s expense as provided in this
section 7, to represent the Executive in the initiation or defense of any litigation or other legal
action, whether by or against Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 7, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp and the Executive agree that a
confidential relationship shall exist between the Executive and that counsel. The fees and
expenses of counsel selected from time to time by the Executive as provided in this section shall
be paid or
reimbursed to the Executive by Cortland Bancorp on a regular, periodic basis upon presentation by
the Executive of a statement or statements prepared by counsel in accordance with counsel’s
customary practices, up to a maximum aggregate amount of $500,000, whether suit be brought or not,
and whether or not incurred in trial, bankruptcy, or appellate proceedings. Cortland Bancorp’s
obligation to pay the Executive’s legal fees under this section 7 operates separately from and in
addition to any legal fee reimbursement obligation Cortland Bancorp may have with the Executive
under any separate salary continuation or other agreement. Despite anything in this Agreement to
the contrary however, Cortland Bancorp shall not be required to pay or reimburse the Executive’s
legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12
U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

 

9

 

8. Withholding of Taxes. Cortland Bancorp may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as may be required by law, governmental
regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the
benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributes, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature.
Without written consent of the other party, neither party shall assign, transfer, or delegate this
Agreement or any rights or obligations under this Agreement except as expressly provided in this
section 9. Without limiting the generality of the foregoing, the Executive’s right to receive
payments hereunder is not assignable or transferable, whether by pledge, creation of a security
interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and
distribution. If the Executive attempts an assignment or transfer that is contrary to this section
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.

 

10

 

10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or
given if in writing and personally delivered, delivered by mail properly addressed in a sealed
envelope, postage prepaid by certified or registered mail, delivered by a
reputable overnight delivery service, or sent by facsimile. Unless otherwise changed by notice,
notice shall be properly addressed to the Executive if addressed to the address of the Executive on
the books and records of Cortland Bancorp at the time of the delivery of the notice, and properly
addressed to Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 194 West
Main Street, Cortland, Ohio 44410, Attention: Corporate Secretary.

11. Captions and Counterparts. The headings and subheadings used in this Agreement are
included solely for convenience and shall not affect the interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same agreement.

12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the
Executive and by Cortland Bancorp. No waiver by either party hereto at any time of any breach by
the other party hereto or waiver of compliance with any condition or provision of this Agreement to
be performed by the other party shall be deemed a waiver of other provisions or conditions at the
same or at any other time.

13. Severability. The provisions of this Agreement are severable. The invalidity or
unenforceability of any provision shall not affect the validity or enforceability of the other
provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed
to the extent (and only to the extent) necessary to make it valid and enforceable.

14. Governing Law. The validity, interpretation, construction, and performance of this
Agreement shall be governed by and construed in accordance with the substantive laws of the State
of Ohio, without giving effect to the principles of conflict of laws of the State of Ohio.

15. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp and the Executive concerning the subject matter. No rights are granted to the Executive
under this Agreement other than those specifically set forth. No agreements or representations,
oral or otherwise, expressed or implied concerning the subject matter have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.

 

11

 

16. No Mitigation Required. Cortland Bancorp hereby acknowledges that it will be difficult
and could be impossible (x) for the Executive to find reasonably comparable employment after
termination and (y) to measure the amount of damages the Executive suffers because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland
Bancorp under this Agreement is reasonable and shall be liquidated damages. The Executive shall
not be required to mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any
source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of
the Executive hereunder or otherwise.

17. Internal Revenue Code Section 409A. Cortland Bancorp and the Executive intend that their
exercise of authority or discretion under this Agreement shall comply with section 409A of the
Internal Revenue Code of 1986. If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code of 1986, and if any
payments or benefits under this Agreement will result in additional tax or interest to the
Executive because of section 409A, then despite any provision of this Agreement to the contrary the
Executive shall not be entitled to the payments or benefits until the earliest of (x) the date that
is at least six months after termination of the Executive’s employment for reasons other than the
Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that does not
result in additional tax or interest to the Executive under section 409A. As promptly as possible
after the end of the period during which payments or benefits are delayed under this provision, the
entire amount of the delayed payments shall be paid to the Executive in a single lump sum. If any
provision of this Agreement does not satisfy the requirements of section 409A, the provision shall
nevertheless be applied in a manner consistent with those requirements. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, Cortland
Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and Cortland Bancorp shall not be required to incur any additional
compensation expense as a result of the reformed provision. References in this Agreement to
section 409A of the Internal Revenue Code of 1986 include rules, regulations, and guidance of
general application issued by the Department of the Treasury under Internal Revenue Code section
409A.

In Witness Whereof, the parties have executed this Severance Agreement as of the date
first written above.

	 	 	 	 	 	 	 	 	 
	Executive	 	 	 	Cortland Bancorp	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

Lawrence A. Fantauzzi

	 	 	 	 	 	 

	 	 
	 

	 	 	 	Its:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

 

12

 

Severance Agreement

This Severance Agreement (this “Agreement”) is entered into effective as of this
day of December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and James M. Gasior (the “Executive”), Senior Vice President, Chief
Financial Officer, and Secretary of Cortland Bancorp and The Cortland Savings and Banking Company
(the “Bank”), an Ohio-chartered bank and wholly owned subsidiary of Cortland Bancorp.

Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and ensure that
officers and other key employees are not practically disabled from discharging their duties if a
proposed or actual transaction involving a change in control arises, and finally desiring to
provide additional inducement for the Executive to remain in the employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,

Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, and

Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Cortland Bancorp, is
contemplated insofar as Cortland Bancorp or any of its subsidiaries is concerned.

Now Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.

1. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
times the Executive’s compensation. For this purpose the Executive’s compensation means (x) the
sum of the Executive’s base salary when the Change in Control occurs, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder shall not be reduced to account for the time value of money or
discounted to present value. Subject to section 17 of this Agreement,
the payment required under this section 1(a) shall be made within five business days after the
Change in Control occurs. The Executive shall be entitled to a payment under this section 1(a) on
no more than one occasion during the term of this Agreement.

 

 

 

(b) Change in Control defined. For purposes of this Agreement the term Change in Control
means 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 —

(1) Change in ownership: a change in ownership of Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,

(2) Change in effective control: (x) any one person or more than one person acting as a
group acquires within a 12-month period ownership of Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’s board of directors is replaced during any 12-month period by directors whose
appointment or election is not endorsed in advance by a majority of Cortland Bancorp’s board
of directors, or

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

2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.

 

2

 

(b) Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or
policies for the insurance benefits specified in section 2(a) it is not possible to continue the
Executive’s coverage on the terms specified in section 2(a), or (y) if when employment termination
occurs the Executive is a specified employee within the meaning of section 409A of the Internal
Revenue Code of 1986, if any of the continued insurance coverage benefits specified in section 2(a)
would be considered deferred compensation under section 409A, and finally if an exemption from the
six-month delay requirement of section 409A(a)(2)(B)(i) is not available for that particular
insurance benefit, instead of continued insurance coverage under section 2(a) Cortland Bancorp
shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the
present value of Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
months or the number of months until the Executive attains age 65. The lump-sum payment shall be
made within five business days after employment termination or, if the Executive is a specified
employee within the meaning of section 409A and an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available, on the first day of the seventh month after the month
in which the Executive’s employment terminates.

(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —

(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,

(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,

(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.

(d) Alternative lump-sum cash payment. If when employment termination occurs the Executive is
a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, if
any of the miscellaneous benefits specified in section 2(c) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available for that particular benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp shall pay or cause to be paid to the
Executive in a single lump sum an amount in cash equal to the present value of Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not terminated.
The lump-sum payment shall be made within five business days after employment termination or, if
the Executive is a specified employee within the meaning of section 409A and an exemption from
the six-month delay requirement of section 409A(a)(2)(B)(i) is not available, on the first day of
the seventh month after the month in which the Executive’s employment terminates.

 

3

 

(e) Involuntary termination with Cause defined. For purposes of this Agreement, involuntary
termination of the Executive’s employment shall be considered involuntary termination with Cause if
the Executive shall have committed any of the following acts —

(1) an act of fraud, embezzlement, or theft while employed by Cortland Bancorp or the
Bank, or conviction of the Executive of or plea of no contest to a felony or conviction of
or plea of no contest to a misdemeanor involving moral turpitude, or the actual
incarceration of the Executive for 45 consecutive days or more, or

(2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of
the Executive’s duties as an officer of Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,

(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or (g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

(4) intentional wrongful disclosure of secret processes or confidential information of
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or

(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, or

(6) the occurrence of any event that results in the Executive being excluded from
coverage, or having coverage limited for the Executive as compared to other executives of
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.

For purposes of this Agreement, no act or failure to act on the Executive’s part shall
be deemed to have been intentional if it was due primarily to an error in judgment or
negligence. An act or failure to act on the Executive’s part shall be considered
intentional if it is not in good faith and if it is without a reasonable belief that the
action or failure to act is in Cortland Bancorp’s best interests. Any act or failure to act
based upon authority granted by resolutions duly adopted by the board of directors or based
upon the advice of counsel
for Cortland Bancorp shall be conclusively presumed to be in good faith and in Cortland
Bancorp’s best interests.

 

4

 

(f) Voluntary termination with Good Reason defined. For purposes of this Agreement, a
voluntary termination by the Executive shall be considered a voluntary termination with Good Reason
if the conditions stated in both clauses (x) and (y) are satisfied —

(x) a voluntary termination by the Executive shall be considered a voluntary
termination with Good Reason if any of the following occur without the Executive’s advance
written consent, and the term Good Reason shall mean the occurrence of any of the following
without the Executive’s advance written consent —

1) a material diminution of the Executive’s base salary,

2) a material diminution of the Executive’s authority, duties, or
responsibilities,

3) a material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report,

4) a material diminution in the budget over which the Executive retains
authority,

5) a material change in the geographic location at which the Executive must
perform services, or

6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.

(y) the Executive must give notice to Cortland Bancorp of the existence of one or more
of the conditions described in clause (x) within 90 days after the initial existence of the
condition, and Cortland Bancorp shall have 30 days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of
the conditions described in clause (x) must occur within 24 months after the initial
existence of the condition.

3. Gross-Up for Taxes. (a) Additional payment to account for excise taxes. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or the Bank
(collectively, the “Total Benefits”), and if any part of the Total Benefits is subject to
the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “Excise Tax”),
Cortland Bancorp shall pay to the Executive the following additional amounts, consisting of (x) a
payment equal to the Excise Tax payable by the Executive under section 4999 on the Total Benefits
(the “Excise Tax Payment”) and (y) a payment equal to 80% of the difference between (w) a
full gross-up amount (including the Excise Tax Payment) that would provide to the Executive the Excise Tax
Payment net of all income, payroll, and excise taxes and (v) the Excise Tax Payment. Together, the
additional amounts described in clauses (x) and (y) are referred to in this Agreement as the
“Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount shall be in addition to
the benefits set forth in section 1 and section 2.

 

5

 

Calculating the excise tax. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax —

	 	1)	 	Determination of “parachute payments” subject to the Excise Tax: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “parachute payments” within the meaning of Internal Revenue Code section
280G(b)(2) and all “excess parachute payments” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “Accounting Firm”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,
	 
	 	2)	 	Calculation of benefits subject to the Excise Tax: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (x) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (y) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and
	 
	 	3)	 	Value of noncash benefits and deferred payments: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm
according to the principles of Internal Revenue Code sections 280G(d)(3) and (4).

Assumed marginal income tax rate. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming
that any reduction under Internal Revenue Code section 68 in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of state and local income taxes that
would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).

 

6

 

Return of reduced Excise Tax payment or payment of additional Excise Tax. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).

If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.

(b) Responsibilities of the Accounting Firm and Cortland Bancorp. Determinations shall be
made by the Accounting Firm. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “Determination”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.

Fees and expenses of the Accounting Firm and agreement with the Accounting Firm. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.

Accounting Firm’s opinion. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.

 

7

 

Accounting Firm’s Determination is binding; underpayment and overpayment. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“Underpayment”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“Overpayment”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.

Accounting Firm conflict of interest. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).

4. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. For purposes of this Agreement the term totally disabled means that because
of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if
any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s
death or disability shall be determined solely by such benefit plans or arrangements as Cortland
Bancorp or the Bank may have with the Executive relating to death or disability, not by this
Agreement.

5. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. On the first
anniversary of the effective date of this Agreement and on each anniversary thereafter this
Agreement shall be extended automatically for one additional year, unless Cortland Bancorp’s board
of directors gives notice to the Executive in writing at least 90 days before the anniversary that
the term of this Agreement will not be extended. If the board of directors determines not to
extend the term, it shall promptly notify the Executive. References herein to the term of this
Agreement mean the initial term and extensions of the initial term. Unless terminated earlier,
this Agreement shall terminate when the Executive attains age 65. If the board of directors
decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force
until its term expires.

 

8

 

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree
that this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.

7. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp to institute
litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take
other action to deny Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. Cortland Bancorp desires that the Executive not
be required to incur the expenses associated with the enforcement of rights under this Agreement,
whether by litigation or other legal action, because the cost and expense thereof would
substantially detract from the benefits intended to be granted to the Executive hereunder.
Cortland Bancorp desires that the Executive not be forced to negotiate settlement of rights under
this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control
occurs it appears to the Executive that (x) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp or any other person has taken any action
to declare this Agreement void or unenforceable, or instituted any litigation or other legal action
designed to deny, diminish, or to recover from the Executive the benefits intended to be provided
to the Executive hereunder, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’s expense as provided in this
section 7, to represent the Executive in the initiation or defense of any litigation or other legal
action, whether by or against Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 7, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp and the Executive agree that a
confidential relationship shall exist between the Executive and that counsel. The fees and
expenses of counsel selected from time to time by the Executive as provided in this section shall
be paid or reimbursed to the Executive by Cortland Bancorp on a regular, periodic basis upon
presentation by the Executive of a statement or statements prepared by counsel in accordance with
counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be
brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings.
Cortland Bancorp’s obligation to pay the Executive’s legal fees under this section 7 operates
separately from and in addition to any legal fee reimbursement obligation Cortland Bancorp may have
with the Executive under any separate salary continuation or other agreement. Despite anything in
this Agreement to the contrary however, Cortland Bancorp shall not be required to pay or reimburse
the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12
CFR 359.3].

 

9

 

8. Withholding of Taxes. Cortland Bancorp may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as may be required by law, governmental
regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the
benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributes, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature.
Without written consent of the other party, neither party shall assign, transfer, or delegate this
Agreement or any rights or obligations under this Agreement except as expressly provided in this
section 9. Without limiting the generality of the foregoing, the Executive’s right to receive
payments hereunder is not assignable or transferable, whether by pledge, creation of a security
interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and
distribution. If the Executive attempts an assignment or transfer that is contrary to this section
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.

10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or
given if in writing and personally delivered, delivered by mail properly addressed in a sealed
envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight
delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be
properly addressed to the Executive if addressed to the address of the Executive on the books and
records of Cortland Bancorp at the time of the delivery of the notice, and properly addressed to
Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 194 West Main Street,
Cortland, Ohio 44410, Attention: Corporate Secretary.

11. Captions and Counterparts. The headings and subheadings used in this Agreement are
included solely for convenience and shall not affect the interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same agreement.

 

10

 

12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in a writing signed
by the Executive and by Cortland Bancorp. No waiver by either party hereto at any time of any
breach by the other party hereto or waiver of compliance with any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of other provisions or
conditions at the same or at any other time.

13. Severability. The provisions of this Agreement are severable. The invalidity or
unenforceability of any provision shall not affect the validity or enforceability of the other
provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed
to the extent (and only to the extent) necessary to make it valid and enforceable.

14. Governing Law. The validity, interpretation, construction, and performance of this
Agreement shall be governed by and construed in accordance with the substantive laws of the State
of Ohio, without giving effect to the principles of conflict of laws of the State of Ohio.

15. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp and the Executive concerning the subject matter. No rights are granted to the Executive
under this Agreement other than those specifically set forth. No agreements or representations,
oral or otherwise, expressed or implied concerning the subject matter have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.

16. No Mitigation Required. Cortland Bancorp hereby acknowledges that it will be difficult
and could be impossible (x) for the Executive to find reasonably comparable employment after
termination and (y) to measure the amount of damages the Executive suffers because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland Bancorp under this Agreement is
reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or
otherwise.

 

11

 

17. Internal Revenue Code Section 409A. Cortland Bancorp and the Executive intend that their
exercise of authority or discretion under this Agreement shall comply with section 409A of the
Internal Revenue Code of 1986. If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code of 1986, and if any
payments or benefits under this Agreement will result in additional tax or interest to the
Executive because of section 409A, then despite any provision of this Agreement to the contrary the
Executive shall not be entitled to the payments or benefits until the earliest of (x) the date that
is at least six months after termination of the Executive’s employment for reasons other
than the Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that
does not result in additional tax or interest to the Executive under section 409A. As promptly as
possible after the end of the period during which payments or benefits are delayed under this
provision, the entire amount of the delayed payments shall be paid to the Executive in a single
lump sum. If any provision of this Agreement does not satisfy the requirements of section 409A,
the provision shall nevertheless be applied in a manner consistent with those requirements. If any
provision of this Agreement would subject the Executive to additional tax or interest under section
409A, Cortland Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the
maximum extent practicable the original intent of the applicable provision without subjecting the
Executive to additional tax or interest, and Cortland Bancorp shall not be required to incur any
additional compensation expense as a result of the reformed provision. References in this
Agreement to section 409A of the Internal Revenue Code of 1986 include rules, regulations, and
guidance of general application issued by the Department of the Treasury under Internal Revenue
Code section 409A.

In Witness Whereof, the parties have executed this Severance Agreement as of the date
first written above.

	 	 	 	 	 	 	 	 	 
	Executive	 	 	 	Cortland Bancorp	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

James M. Gasior

	 	 
	 	 	 	 

Lawrence A. Fantauzzi
	 	 
	 

	 	 	 	Its:
	 	President and Chief Executive Officer	 	 

 

12

 

Severance Agreement

This Severance Agreement (this “Agreement”) is entered into effective as of this
day of December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Stephen A. Telego Sr. (the “Executive”), Senior Vice President
and Director of Human Resources and Corporate Administration of The Cortland Savings and Banking
Company (the “Bank”), an Ohio-chartered bank and wholly owned subsidiary of Cortland Bancorp, an
Ohio corporation.

Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and ensure that
officers and other key employees are not practically disabled from discharging their duties if a
proposed or actual transaction involving a change in control arises, and finally desiring to
provide additional inducement for the Executive to remain in the employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,

Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, and

Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Cortland Bancorp, is
contemplated insofar as Cortland Bancorp or any of its subsidiaries is concerned.

Now Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.

1. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
times the Executive’s compensation. For this purpose the Executive’s compensation means (x) the
sum of the Executive’s base salary when the Change in Control occurs, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder shall not be reduced to account for the time value of money or
discounted to present value. Subject to section 17 of this Agreement,
the payment required under this section 1(a) shall be made within five business days after the
Change in Control occurs. The Executive shall be entitled to a payment under this section 1(a) on
no more than one occasion during the term of this Agreement.

 

 

 

(b) Change in Control defined. For purposes of this Agreement the term Change in Control
means 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 —

(1) Change in ownership: a change in ownership of Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,

(2) Change in effective control: (x) any one person or more than one person acting as a
group acquires within a 12-month period ownership of Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’s board of directors is replaced during any 12-month period by directors whose
appointment or election is not endorsed in advance by a majority of Cortland Bancorp’s board
of directors, or

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

2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.

 

2

 

(b) Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or
policies for the insurance benefits specified in section 2(a) it is not possible to continue the
Executive’s coverage on the terms specified in section 2(a), or (y) if when employment termination
occurs the Executive is a specified employee within the meaning of section 409A of the Internal
Revenue Code of 1986, if any of the continued insurance coverage benefits specified in section 2(a)
would be considered deferred compensation under section 409A, and finally if an exemption from the
six-month delay requirement of section 409A(a)(2)(B)(i) is not available for that particular
insurance benefit, instead of continued insurance coverage under section 2(a) Cortland Bancorp
shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the
present value of Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
months or the number of months until the Executive attains age 65. The lump-sum payment shall be
made within five business days after employment termination or, if the Executive is a specified
employee within the meaning of section 409A and an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available, on the first day of the seventh month after the month
in which the Executive’s employment terminates.

(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —

(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,

(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,

(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.

(d) Alternative lump-sum cash payment. If when employment termination occurs the Executive is
a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, if
any of the miscellaneous benefits specified in section 2(c) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available for that particular benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp shall pay or cause to be paid to the
Executive in a single lump sum an amount in cash equal to the present value of Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not terminated.
The lump-sum payment shall be made within five business days after employment termination or, if
the Executive is a specified employee within the meaning of section 409A and an exemption from
the six-month delay requirement of section 409A(a)(2)(B)(i) is not available, on the first day of
the seventh month after the month in which the Executive’s employment terminates.

 

3

 

(e) Involuntary termination with Cause defined. For purposes of this Agreement, involuntary
termination of the Executive’s employment shall be considered involuntary termination with Cause if
the Executive shall have committed any of the following acts —

(1) an act of fraud, embezzlement, or theft while employed by Cortland Bancorp or the
Bank, or conviction of the Executive of or plea of no contest to a felony or conviction of
or plea of no contest to a misdemeanor involving moral turpitude, or the actual
incarceration of the Executive for 45 consecutive days or more, or

(2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of
the Executive’s duties as an officer of Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,

(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or (g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

(4) intentional wrongful disclosure of secret processes or confidential information of
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or

(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, or

(6) the occurrence of any event that results in the Executive being excluded from
coverage, or having coverage limited for the Executive as compared to other executives of
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.

For purposes of this Agreement, no act or failure to act on the Executive’s part shall
be deemed to have been intentional if it was due primarily to an error in judgment or
negligence. An act or failure to act on the Executive’s part shall be considered
intentional if it is not in good faith and if it is without a reasonable belief that the
action or failure to act is in Cortland Bancorp’s best interests. Any act or failure to act
based upon authority granted by resolutions duly adopted by the board of directors or based
upon the advice of counsel
for Cortland Bancorp shall be conclusively presumed to be in good faith and in Cortland
Bancorp’s best interests.

 

4

 

(f) Voluntary termination with Good Reason defined. For purposes of this Agreement, a
voluntary termination by the Executive shall be considered a voluntary termination with Good Reason
if the conditions stated in both clauses (x) and (y) are satisfied —

(x) a voluntary termination by the Executive shall be considered a voluntary
termination with Good Reason if any of the following occur without the Executive’s advance
written consent, and the term Good Reason shall mean the occurrence of any of the following
without the Executive’s advance written consent —

1) a material diminution of the Executive’s base salary,

2) a material diminution of the Executive’s authority, duties, or
responsibilities,

3) a material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report,

4) a material diminution in the budget over which the Executive retains
authority,

5) a material change in the geographic location at which the Executive must
perform services, or

6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.

(y) the Executive must give notice to Cortland Bancorp of the existence of one or more
of the conditions described in clause (x) within 90 days after the initial existence of the
condition, and Cortland Bancorp shall have 30 days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of
the conditions described in clause (x) must occur within 24 months after the initial
existence of the condition.

3. Gross-Up for Taxes. (a) Additional payment to account for excise taxes. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or the Bank
(collectively, the “Total Benefits”), and if any part of the Total Benefits is subject to
the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “Excise Tax”),
Cortland Bancorp shall pay to the Executive the following additional amounts, consisting of (x) a
payment equal to the Excise Tax payable by the Executive under section 4999 on the Total Benefits
(the “Excise Tax Payment”) and (y) a payment equal to 80% of the difference between (w) a
full gross-
up amount (including the Excise Tax Payment) that would provide to the Executive the Excise Tax
Payment net of all income, payroll, and excise taxes and (v) the Excise Tax Payment. Together, the
additional amounts described in clauses (x) and (y) are referred to in this Agreement as the
“Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount shall be in addition to
the benefits set forth in section 1 and section 2.

 

5

 

Calculating the excise tax. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax —

	 	1)	 	Determination of “parachute payments” subject to the Excise Tax: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “parachute payments” within the meaning of Internal Revenue Code section
280G(b)(2) and all “excess parachute payments” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “Accounting Firm”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,
	 
	 	2)	 	Calculation of benefits subject to the Excise Tax: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (x) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (y) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and
	 
	 	3)	 	Value of noncash benefits and deferred payments: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm
according to the principles of Internal Revenue Code sections 280G(d)(3) and (4).

Assumed marginal income tax rate. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming
that any reduction under Internal Revenue Code section 68 in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of state and local income taxes that
would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).

 

6

 

Return of reduced Excise Tax payment or payment of additional Excise Tax. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).

If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.

(b) Responsibilities of the Accounting Firm and Cortland Bancorp. Determinations shall be
made by the Accounting Firm. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “Determination”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.

Fees and expenses of the Accounting Firm and agreement with the Accounting Firm. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.

Accounting Firm’s opinion. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.

 

7

 

Accounting Firm’s Determination is binding; underpayment and overpayment. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“Underpayment”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“Overpayment”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.

Accounting Firm conflict of interest. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).

4. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. For purposes of this Agreement the term totally disabled means that because
of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if
any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s
death or disability shall be determined solely by such benefit plans or arrangements as Cortland
Bancorp or the Bank may have with the Executive relating to death or disability, not by this
Agreement.

5. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. On the first
anniversary of the effective date of this Agreement and on each anniversary thereafter this
Agreement shall be extended automatically for one additional year, unless Cortland Bancorp’s board
of directors gives notice to the Executive in writing at least 90 days before the anniversary that
the term of this Agreement will not be extended. If the board of directors determines not to
extend the term, it shall promptly notify the Executive. References herein to the term of this
Agreement mean the initial term and extensions of the initial term. Unless terminated earlier,
this Agreement shall terminate when the Executive attains age 65. If the board of directors
decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force
until its term expires.

 

8

 

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree
that this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.

7. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp to institute
litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take
other action to deny Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. Cortland Bancorp desires that the Executive not
be required to incur the expenses associated with the enforcement of rights under this Agreement,
whether by litigation or other legal action, because the cost and expense thereof would
substantially detract from the benefits intended to be granted to the Executive hereunder.
Cortland Bancorp desires that the Executive not be forced to negotiate settlement of rights under
this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control
occurs it appears to the Executive that (x) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp or any other person has taken any action
to declare this Agreement void or unenforceable, or instituted any litigation or other legal action
designed to deny, diminish, or to recover from the Executive the benefits intended to be provided
to the Executive hereunder, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’s expense as provided in this
section 7, to represent the Executive in the initiation or defense of any litigation or other legal
action, whether by or against Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 7, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp and the Executive agree that a
confidential relationship shall exist between the Executive and that counsel. The fees and
expenses of counsel selected from time to time by the Executive as provided in this section shall
be paid or reimbursed to the Executive by Cortland Bancorp on a regular, periodic basis upon
presentation by the Executive of a statement or statements prepared by counsel in accordance with
counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be
brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings.
Cortland Bancorp’s obligation to pay the Executive’s legal fees under this section 7 operates
separately from and in addition to any legal fee reimbursement obligation Cortland Bancorp may have
with the Executive under any separate salary continuation or other agreement. Despite anything in
this Agreement to the contrary however, Cortland Bancorp shall not be required to pay or reimburse
the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12
CFR 359.3].

 

9

 

8. Withholding of Taxes. Cortland Bancorp may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as may be required by law, governmental
regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the
benefit of and be enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributes, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature.
Without written consent of the other party, neither party shall assign, transfer, or delegate this
Agreement or any rights or obligations under this Agreement except as expressly provided in this
section 9. Without limiting the generality of the foregoing, the Executive’s right to receive
payments hereunder is not assignable or transferable, whether by pledge, creation of a security
interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and
distribution. If the Executive attempts an assignment or transfer that is contrary to this section
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.

10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or
given if in writing and personally delivered, delivered by mail properly addressed in a sealed
envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight
delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be
properly addressed to the Executive if addressed to the address of the Executive on the books and
records of Cortland Bancorp at the time of the delivery of the notice, and properly addressed to
Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 194 West Main Street,
Cortland, Ohio 44410, Attention: Corporate Secretary.

11. Captions and Counterparts. The headings and subheadings used in this Agreement are
included solely for convenience and shall not affect the interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same agreement.

 

10

 

12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in a writing signed
by the Executive and by Cortland Bancorp. No waiver by either party hereto at any time of any
breach by the other party hereto or waiver of compliance with any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of other provisions or
conditions at the same or at any other time.

13. Severability. The provisions of this Agreement are severable. The invalidity or
unenforceability of any provision shall not affect the validity or enforceability of the other
provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed
to the extent (and only to the extent) necessary to make it valid and enforceable.

14. Governing Law. The validity, interpretation, construction, and performance of this
Agreement shall be governed by and construed in accordance with the substantive laws of the State
of Ohio, without giving effect to the principles of conflict of laws of the State of Ohio.

15. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp and the Executive concerning the subject matter. No rights are granted to the Executive
under this Agreement other than those specifically set forth. No agreements or representations,
oral or otherwise, expressed or implied concerning the subject matter have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.

16. No Mitigation Required. Cortland Bancorp hereby acknowledges that it will be difficult
and could be impossible (x) for the Executive to find reasonably comparable employment after
termination and (y) to measure the amount of damages the Executive suffers because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland Bancorp under this Agreement is
reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or
otherwise.

 

11

 

17. Internal Revenue Code Section 409A. Cortland Bancorp and the Executive intend that their
exercise of authority or discretion under this Agreement shall comply with section 409A of the
Internal Revenue Code of 1986. If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code of 1986, and if any
payments or benefits under this Agreement will result in additional tax or interest to the
Executive because of section 409A, then despite any provision of this Agreement to the contrary the
Executive shall not be entitled to the payments or benefits until the earliest of (x) the date that
is at least six months after termination of the Executive’s employment for reasons other
than the Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that
does not result in additional tax or interest to the Executive under section 409A. As promptly as
possible after the end of the period during which payments or benefits are delayed under this
provision, the entire amount of the delayed payments shall be paid to the Executive in a single
lump sum. If any provision of this Agreement does not satisfy the requirements of section 409A,
the provision shall nevertheless be applied in a manner consistent with those requirements. If any
provision of this Agreement would subject the Executive to additional tax or interest under section
409A, Cortland Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the
maximum extent practicable the original intent of the applicable provision without subjecting the
Executive to additional tax or interest, and Cortland Bancorp shall not be required to incur any
additional compensation expense as a result of the reformed provision. References in this
Agreement to section 409A of the Internal Revenue Code of 1986 include rules, regulations, and
guidance of general application issued by the Department of the Treasury under Internal Revenue
Code section 409A.

In Witness Whereof, the parties have executed this Severance Agreement as of the date
first written above.

	 	 	 	 	 	 	 	 	 
	Executive	 	 	 	Cortland Bancorp	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

Stephen A. Telego Sr.

	 	 
	 	 	 	 

Lawrence A. Fantauzzi
	 	 
	 

	 	 	 	Its:
	 	President and Chief Executive Officer	 	 

 

12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}]]