THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Exhibit 10.1

THIRD AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This AGREEMENT is made as of this _25th__ day of January, 2006, by and between PARTNERS trust financial group, inc., a Delaware corporation ("Partners Trust" or the "Employer"), and JOHN A. ZAWADZKI, an individual residing in New Hartford, New York (the "Executive").

WHEREAS, the Executive is serving as President and Chief Executive Officer of Partners Trust and Partners Trust Bank, a federally chartered stock savings bank wholly owned by Partners Trust (the "Bank");

WHEREAS, the Executive and Partners Trust have previously entered into a Second Amended and Restated Employment Agreement dated as of April 29, 2004 (the "Prior Agreement"), which the parties intend to be replaced and superceded by this Agreement; and

WHEREAS, the Board of Directors of Partners Trust have approved and authorized Partners Trust to amend and restate this Agreement to set forth the terms and conditions for the employment relationship of the Executive with the Employer:

NOW, THEREFORE, in consideration of the foregoing and the mutual promises, covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

1.             Employment.

(a)           Term. The initial term of employment under this Agreement shall be for the period commencing on the date hereof and ending on March 31, 2009 (the "Initial Term"). Subject to annual review and approval by the Board of Directors of the Employer, this Agreement may be extended by written notice from the Employer to the Executive for an additional consecutive 12-month period (the "Extended Term") no later than March 31, 2007 and every subsequent March 31 thereafter, unless the Executive has given contrary written notice to the Employer at least 90 days before any such renewal date. The Initial Term and all such Extended Terms are collectively referred to herein as the "Employment Term."

(b)           Duties. The Executive is employed as President and Chief Executive Officer of Partners Trust during the Employment Term. As the President and Chief Executive Officer of Partners Trust, the Executive shall render executive, policy and other management services to Partners Trust of the type customarily performed by persons serving in a similar chief executive officer capacity and Partners Trust shall cause the Bank to appoint Executive to also serve as President and Chief Executive Officer of the Bank. As Chief Executive Officer of the Employer and the Bank, the Executive shall be responsible for implementing the policies of the Board of Directors of the Employer and the Board of Directors of the Bank, and shall report only to such respective Boards, as applicable. The Executive shall also perform such duties as the Board of Directors of the Employer may from time to time reasonably direct. During the Employment Term, there shall be no material decrease in the duties and responsibilities of the Executive otherwise than as provided herein, unless the parties otherwise agree in writing; provided, that if the Executive temporarily assumes some or all of the duties and responsibilities of another key executive of the Employer due to such key executive's death, disability or termination of employment, the reassignment of such duties and responsibilities back to the key executive or his or her replacement shall not constitute a material decrease in the duties and responsibilities of the Executive. During the Employment Term, the Executive shall not be required to relocate, without his consent, his place of employment to a location more than 65 miles away from the Employer's Utica, New York headquarters location to perform his duties hereunder, except for reasonably required travel by the Executive on the business of the Employer or the Bank. The Executive is encouraged to affiliate with professional associations, business and civic organizations in support of his role as President and Chief Executive Officer, provided that Executive's involvement in such activities does not adversely affect the performance of his duties on behalf of the Employer or the Bank.

2.             Compensation and Benefits.

(a)           Base Salary. The Executive shall initially be paid a base salary at an annualized rate of $400,000 (as may be adjusted from time to time in accordance with this Agreement, "Base Salary"), payable in accordance with the Employer's regular payroll practices for its executive employees. On an annual basis, prior to June 30 of each year during the Employment Term, the Executive's Base Salary shall be reviewed by the Board of Directors of the Employer and may be increased in the discretion of the Board of Directors of the Employer. In reviewing the Executive's Base Salary, the Board of Directors of the Employer shall consider the Executive's performance, scope of responsibility, and such other matters as the Board of Directors of the Employer deems appropriate. The Base Salary of the Executive shall not be decreased at any time during the Employment Term from the amount then in effect, unless the Executive otherwise agrees in writing. The Executive shall not be entitled to receive fees for serving as a director of the Employer or any of its subsidiaries or for serving as a member of any committee of the Boards of Directors of the Employer or any of its subsidiaries.

(b)           Bonuses and Incentive Compensation. The Executive shall be eligible to participate in an equitable manner with all other executive employees of the Employer and the Employer shall cause the Bank to allow the Executive to participate in an equitable manner with all other executive employees of the Bank in any bonus or other incentive programs as may be authorized, declared and paid by either the Board of Directors of the Employer or the Board of Directors of the Bank. No other compensation provided for in this Agreement shall be deemed a substitute for the Executive's right to participate in such bonuses and incentive programs when and as declared by the Board of Directors of the Employer or the Board of Directors of the Bank. This provision shall not preclude the grant of any other bonus to the Executive as determined by the Board of Directors of the Employer or the Board of Directors of the Bank.

(c)           Benefit Plans. The Executive shall be eligible to participate in any employee pension benefit plans (as that term is defined under Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), group life insurance plans, medical plans, dental plans, long-term disability plans, business travel insurance programs and other fringe benefit plans or programs maintained by the Employer for the benefit of its executive employees and the Employer shall cause the Bank to make the Executive eligible to participate in such plans or programs as maintained by the Bank for the benefit of its executive employees. The Executive's participation in any such benefit plans and programs shall be based on, and subject to satisfaction of, the eligibility requirements and other conditions of such plans and programs. If the Executive's employment by the Employer shall cease for any reason other than by voluntary termination (as described in Section 3(b) below) or for "Cause" (defined in Section 3(e) below), the Executive shall receive continued group life, health, dental, accident and long term disability insurance coverage for the remaining Employment Term, equivalent to the coverage to which he would have been entitled under such plans (as in effect on the date of his termination of employment, or, if his termination of employment occurs after a "Change of Control" (defined in Section 4(c) below), on the date of such Change of Control, whichever benefits are greater, if he had continued working for the Employer during the remaining Employment Term at the highest rate of salary achieved during the Employment Term, but taking into account any coverage provided from any subsequent employer.

(d)           Expenses. The Executive is expected and is authorized to incur reasonable expenses in the performance of his duties hereunder, including the costs of business entertainment, travel, and attendance at conventions and meetings. The Employer shall reimburse the Executive for all such expenses promptly upon periodic presentation by the Executive of an itemized account of such expenses.

(e)           Other Benefits. During the period of employment, the Executive shall also be entitled to receive the following benefits:

(i)            Paid vacation of at least four weeks during each calendar year (prorated for partial years) (with no carry over of unused vacation to a subsequent year) and any holidays that may be provided to substantially all employees of the Employer and the Bank in accordance with the Employer's and the Bank's holiday policy;

(ii)           Reasonable sick leave consistent with the Employer's and the Bank's policy in that regard for other executive officers; and

(iii)          Reimbursement of fees or dues (but not personal expenses) for up to three club memberships of the Executive at dining or country clubs as may be beneficial to the Executive's roles with the Employer and the Bank. The choice of clubs shall be subject to review and disapproval by the Board of Directors of the Employer at any time.

(iv)          Use of an Employer- or Bank-owned vehicle of type and age commensurate with the Executive's duties and role with the Employer.

3.             Termination.

Prior to a Change of Control, the Executive's employment by the Employer shall be subject to termination as follows:

(a)           Expiration of the Employment Term. The Executive's employment with the Employer shall not terminate prior to the expiration of the established term, except as provided below in Section 3.

(b)           Voluntary Termination. The Executive may terminate this Agreement upon not less than 60 days prior written notice delivered to the Employer, in which event the Executive shall be entitled only to the compensation and benefits the Executive has earned or accrued through the effective date of the voluntary termination.

(c)           Termination Upon Death. This Agreement shall terminate upon the Executive's death. In the event this Agreement is terminated as a result of the Executive's death, the Employer shall continue payments of the Executive's Base Salary which should have otherwise been due for a period of 90 days following the Executive's death to the Executive's estate.

(d)           Termination Upon Disability. The Employer may terminate this Agreement upon the Executive's disability. For purposes of this Agreement, the Executive's inability to perform the Executive's duties hereunder by reason of physical or mental illness or injury for a period of 26 consecutive weeks that follows the Executive's use of all available sick leave (the "Disability Period") shall constitute disability. The determination of disability shall be made by a physician selected by the Employer. During the Disability Period, the Executive shall be entitled to 100% of the Executive's Base Salary otherwise payable during that period, reduced by any other Employer- or Bank-provided benefits to which the Executive may be entitled with respect to the Disability Period which benefits are specifically payable solely on account of such disability (including, but not limited to, benefits provided under any disability insurance policy or program, worker's compensation law, or any other benefit program or arrangement).

(e)           Termination for Cause. The Employer may terminate the Executive's employment for Cause by written notice to the Executive. For purposes of this Agreement, "Cause" shall mean the Executive's (1) personal dishonesty, incompetence, willful misconduct; (2) breach of fiduciary duty involving personal profit, intentional failure to perform material stated duties; (3) willful violation of any law, rule, or regulation (other than traffic violations or similar offenses); (4) being a specific subject of a final cease and desist order from, written agreement with, or other order or supervisory direction from, any federal or state regulatory authority; or (5) conduct tending to bring either the Employer or the Bank into substantial public disgrace or disrepute. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the financial institutions industry; provided, it shall be the burden of the Employer to prove the alleged acts and omissions and the prevailing nature of the standards the Employer shall have alleged are violated by such acts and/or omissions.

Notwithstanding any other term or provision of this Agreement to the contrary, if the Executive's employment is terminated for Cause, the Executive shall forfeit all rights to payments and benefits otherwise provided pursuant to this Agreement; provided, however, that Base Salary shall be paid through the date of termination.

(f)            Termination Without Cause. The Employer may terminate the Executive's employment for reasons other than Cause upon not less than 60 days prior written notice delivered to the Executive, in which event the Employer shall pay to the Executive, within 30 days of the date of termination, a lump sum payment equal to the unpaid Base Salary that would have been paid to or earned by the Executive pursuant to this Agreement, if the Executive had remained employed under the terms of this Agreement through the end of the Employment Term, or for a period of 12 months following the date of termination, whichever period is longer. If the Executive terminates his employment with the Employer during the Employment Term for "Good Reason" (defined in Section 4(d) below), other than following a Change of Control, such termination shall be deemed to have been a termination by the Employer of the Executive's employment without cause.

(g)           Change of Control. If the Executive's employment by the Employer shall cease for any reason other than Cause within six months prior to, or 24 months following, a Change of Control that occurs during the Employment Term, the provisions of paragraph 4 below shall apply.

(h)           Resignation. Effective upon the Executive's termination of employment for any reason, the Executive hereby resigns from any and all offices and positions related to the Executive's employment with the Employer and any subsidiaries or affiliates thereof, and held by the Executive at the time of termination.

(i)            Regulatory Limits. Notwithstanding any other provision in this Agreement, (i) the Employer may terminate or suspend this Agreement and the employment of the Executive hereunder, as if such termination were for Cause under Section 3(e) hereof, to the extent required by the applicable Federal or state related to banking, deposit insurance or bank or savings institution holding companies or by regulations or orders issued by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation or any other state or federal banking regulatory agency having jurisdiction over Partners Trust or the Bank and (ii) no payment shall be required to be made to or for the benefit of the Executive under this Agreement to the extent such payment is prohibited by applicable law, regulation or order issued by a banking agency or a court of competent jurisdiction; provided, that it shall be the Employer's burden to prove that any such action was so required.

4.             Termination Following a Change of Control.

(a)           In the event the Employer terminates the Executive's employment, or the Executive terminates employment with Good Reason, in either case within six months prior to, or 24 months after, a Change of Control, the Employer shall, within 60 days of termination, pay to the Executive a lump sum cash payment equal to 2.99 times the average annual compensation paid to the Executive by Employer and included in the Executive's gross income for income tax purposes during the five full calendar years, or shorter period of employment, that immediately precede the year during which the Change of Control occurs.

(b)