ex109.htm


    Exhibit
10.9

    EMPLOYMENT
AGREEMENT

    


    This sets
forth the terms of the Employment Agreement made effective as of August 1, 2004,
and amended as of December 31, 2008 between (i) COMMUNITY BANK SYSTEM, INC., a
Delaware corporation and registered bank holding company, and COMMUNITY BANK,
N.A., a national banking association, both having offices located in Dewitt, New
York (collectively, the "Employer"), and (ii) BRIAN D. DONAHUE, an individual
currently residing at Olean, New York ("Employee").  This Agreement is
effective as of August 1, 2004 and supersedes the Employment Agreement between
the parties dated September 1, 2002.  This Agreement was amended
December 31, 2008 in accordance with Internal Revenue Code Section
409A.

    


    W I T N E S S E T
H

    IN
CONSIDERATION of the promises and mutual agreements and covenants contained
herein, and other good and valuable consideration, the parties agree as
follows:

    1.           Employment.

    (a)           Term.  Employer
shall employ Employee, and Employee shall serve, as Chief Banking Officer and
Executive Vice President of Employer for a term commencing on August 1, 2004 and
ending on December 31, 2009 ("Period of Employment"), subject to termination as
provided in paragraph 3 hereof.

    (b)           Salary.  During
the period August 1, 2004 through December 31, 2004, Employer shall pay Employee
base salary at the annual rate of $200,000.00 ("Base Salary").  For
calendar year 2005, Employer shall pay Employee Base Salary at the annual rate
of $230,000.00.  Employee's Base Salary for calendar years after 2005
shall be determined by the Board of Directors of Employer ("Board"), or an
authorized committee of the Board, in accordance with Employer's regular
practice for reviewing and adjusting base salary for executive
employees.  Employee's Base Salary is payable in accordance with
Employer's regular payroll practices for executive employees.

    (c)           Incentive
Compensation.  Employee shall be entitled to annual incentive
compensation opportunities pursuant to the terms of the "Management Incentive
Plan" (which term includes any successor plan or incentive compensation
arrangement) which has been approved by the Board to cover Employee and other
key personnel of Employer.  Upon termination of Employee's employment
pursuant to subparagraph 3(a), 3(b), 3(c) or paragraph 6, Employee shall be
entitled to a pro rata portion (based on Employee's complete months of active
employment in the applicable year) of the annual incentive award that is payable
with respect to the year during which the termination occurs or, in the case of
a termination upon Employee's disability pursuant to subparagraph 3(c), the date
the Disability Period began.

    (d)           Until
such time as Employee relocates his principal residence to the Syracuse, New
York area, which relocation shall occur by a date to be agreed upon by the
parties (but in no event shall such date be earlier than January 1, 2009),
Employee shall be entitled to perform his services for Employer from offices in
Dewitt, New York and Olean, New York.  After such mutually agreed-upon
date, Employee shall perform his services for Employer from an office in Dewitt,
New York.

    2.           Duties during the Period of
Employment.  Employee shall have full responsibility, subject
to the control of the Board and Employer's President and Chief Executive Officer
or authorized designee, for the supervision of all aspects of Employer's banking
business and operations, and the discharge of such other duties and
responsibilities to Employer as may from time to time be reasonably assigned to
Employee by the Board or Employer's President and Chief Executive
Officer.  Employee shall report to the President and Chief Executive
Officer of Employer or the President and Chief Executive Officer's
designee.  Employee shall devote Employee's best efforts to the
affairs of Employer, serve faithfully and to the best of Employee's ability and
devote all of Employee's working time and attention, knowledge, experience,
energy and skill to the business of Employer, except that Employee may affiliate
with professional associations, business and civic
organizations.  Employee shall serve on the Board of Directors of, or
as an officer of Employer's affiliates, without additional compensation if
requested to do so by the Board of Directors of Employer.  Employee
shall receive only the compensation and other benefits described in this
Agreement for Employee's duties as a Director of Employer.

     

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    3.           Termination.  Employee's
employment by Employer shall be subject to termination as follows:

    (a)           Expiration of the
Term.  This Agreement shall terminate automatically at the
expiration of the Period of Employment unless the parties enter into a written
agreement extending Employee's employment, except for the continuing obligations
of the parties as specified hereunder.

    (b)           Termination Upon
Death.  This Agreement shall terminate upon Employee's
death.  In the event this Agreement is terminated as a result of
Employee's death, Employer shall continue payments of Employee's Base Salary for
a period of 90 days following Employee's death to the beneficiary designated by
Employee on the "Beneficiary Designation Form" attached to this Agreement as
Appendix A.  Employee's beneficiary shall be free to dispose of any
restricted stock previously granted to Employee by
Employer.  Additionally, Employer shall treat as immediately
exercisable all unexpired stock options issued by Employer and held by Employee
that are not exercisable or that have not been exercised, so as to permit the
Beneficiary to purchase the balance of Community Bank System, Inc. ("CBSI")
Stock not yet purchased pursuant to said options until the end of the full
exercise period provided in the original grant of the option right, determined
without regard to Employee's death or termination of employment.

    (c)           Termination Upon
Disability.  Employer may terminate this Agreement upon
Employee's disability.  For the purpose of this Agreement, Employee's
inability to perform Employee's duties hereunder by reason of physical or mental
illness or injury for a period of 26 successive weeks, or such longer
waiting/elimination period provided pursuant to Employer's group long-term
disability policy (the "Disability Period") shall constitute
disability.  The determination of disability shall be made by a
majority vote of a physician selected by Employer, a physician selected by
Employee and a third physician selected by the other two
physicians.  During the Disability Period, Employee shall be entitled
to 100% of Employee's Base Salary otherwise payable during that period, reduced
by any other benefits to which Employee may be entitled for the Disability
Period 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).  Thereafter, upon
termination pursuant to this disability provision, Employee shall be free to
dispose of any restricted stock granted to Employee.  Additionally,
Employer shall treat as immediately exercisable all unexpired stock options
issued by Employer and held by Employee that are not exercisable or that have
not been exercised, so as to permit the Employee to purchase the balance of CBSI
Stock not yet purchased pursuant to said options until the end of the full
exercise period provided in the original grant of the option right, determined
without regard to Employee's disability or termination of
employment.

    (d)           Termination for
Cause.  Employer may terminate Employee's employment
immediately for "cause" by written notice to Employee.  For purposes
of this Agreement, a termination shall be for "cause" if the termination results
from any of the following events:

    (i)           Material
breach of this Agreement;

    (ii)           Documented
misconduct as an executive of Employer, or any subsidiary or affiliate of
Employer for which Employee is performing services hereunder including, but not
limited to, misappropriating any funds or property of any such company, or
attempting to obtain any personal profit (A) from any transaction to which such
company is a party or (B) from any transaction with any third party in which
Employee has an interest which is adverse to the interest of any such company,
unless, in either case, Employee shall have first obtained the written consent
of the Board;

    (iii)           Unreasonable
neglect or refusal to perform the duties assigned to Employee under or pursuant
to this Agreement, unless cured within 60 days following Employee's receipt of
written notice to Employee of such neglect or refusal;

    (iv)           Conviction
of a crime involving moral turpitude;

    (v)           Adjudication
as a bankrupt, which adjudication has not been contested in good faith, unless
bankruptcy is caused directly by Employer's unexcused failure to perform its
obligations under this Agreement;

    (vi)           Documented
and material failure to follow the reasonable, written instructions of the Board
or the President and Chief Executive Officer of Employer or authorized designee,
provided that the instructions do not require Employee to engage in unlawful
conduct; or

    (vii)           Any
material and documented violation of the rules or regulations of the Office of
the Comptroller of the Currency or of any other regulatory agency. Notwithstanding
any other term or provision of this Agreement to the contrary, if Employee's
employment is terminated for cause, Employee 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.

     

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    (e)           Termination For Reasons
Other Than Cause.  In the event Employer terminates Employee
prior to December 31, 2009 for reasons other than cause, Employee shall be
entitled to a severance benefit equal to the greater of (i) the sum of the
annual Base Salary in effect at the time of termination and the most recent
payment to Employee under the Management Incentive Plan, or (ii) amounts of Base
Salary and expected Management Incentive Plan payments that otherwise would have
been payable through the balance of the unexpired term of this
Agreement.  Unless Employee is a “specified employee” (as determined
in accordance with Internal Revenue Code Section 409A), the benefit payable
pursuant to this paragraph 3(e) shall be payable in equal biweekly installments
over the 12-month period that begins on the first day of the month following
Employee’s termination.  If Employee is a “specified employee” (as
determined in accordance with Internal Revenue Code Section 409A), then
installment payments during the first six months of the 12-month installment
period shall be limited to the extent required by Internal Revenue Code Section
409A, any unpaid installment amounts shall be paid immediately after such
six-month period and installment payments due during the remaining six months
shall be paid as scheduled.

    In
addition, Employer shall: (iii) permit Employee to dispose of any restricted
stock granted to Employee; and (iv) treat as immediately exercisable all
unexpired stock options held by Employee that are not exercisable or that have
not been exercised, so as to permit Employee to purchase the balance of CBSI
Stock not yet purchased pursuant to said options until the end of the full
exercise period provided in the original grant of the option right determined
without regard to Employee's termination of employment.

    Notwithstanding
the foregoing, if Employer terminates Employee for reasons other than cause and
under circumstances that entitle Employee to payments and benefits under
paragraph 6 of this Agreement (regarding “Change of Control”) then amounts
payable under clauses (i) or (ii) of this paragraph 3(e) shall be reduced by any
payments made to Employee under paragraphs 6(a)(i) and (ii).

    (f)           Expiration of Term Without
Renewal.  In the event that Employee's employment ends on
December 31, 2009 solely because Employer chooses not to renew or extend this
Agreement beyond December 31, 2009 for reasons other than cause, then Employee
shall be entitled to a severance benefit equal to the sum of (i) 175 percent of
the annual Base Salary in effect at the time of termination, and (ii) the most
recent payment to Employee under the Management Incentive Plan.  The
benefit payable under this paragraph 3(f) shall be reduced by any amounts
payable to Employee under paragraphs 6(a)(i) and (ii).  Any remaining
benefit described in this paragraph 3(f) shall be paid on or before March 15,
2010.

    (g)           Employer
shall have the right of first refusal to purchase from Employee, or from
Employee's beneficiary or estate, shares of CBSI Stock (but not outstanding
options) acquired pursuant to the exercise of stock options after the date of
Employee's termination of employment for any reason, in the event Employee, or
Employee's beneficiary or estate, elects to dispose or transfer such acquired
shares.  Any purchase made pursuant to this subparagraph shall be made
at a price per share equal to the closing price per share of CBSI Stock (on the
principal public market on which CBSI Stock is traded; currently the New York
Stock Exchange) on the trading day that immediately precedes the date of
purchase.  The right of first refusal described in this subparagraph
shall expire ten years from the date of Employee's termination of
employment.

    4.           Fringe
Benefits.

    (a)           Benefit
Plans.  During the Period of Employment, Employee 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), Employer-paid group life insurance plans, medical plans,
dental plans, long-term disability plans, business travel insurance programs and
other fringe benefit programs maintained by Employer for the benefit of its
executive employees.  Participation in any of Employer's benefit plans
and programs shall be based on, and subject to satisfaction of, the eligibility
requirements and other conditions of such plans and
programs.  Employer may require Employee to submit to an annual
physical, to be performed by a physician of his own
choosing.  Employee shall be reimbursed for related expenses not
covered by Employer's health insurance plan, or any other plan in which Employee
is enrolled.  Employee shall not be eligible to participate in
Employer's Severance Pay Plan maintained for other employees not covered by
employment agreements.

    (b)           Expenses.  Upon
submission to Employer of vouchers or other required documentation, Employee
shall be reimbursed for Employee's actual out-of-pocket travel and other
expenses reasonably incurred and paid by Employee in connection with Employee's
duties hereunder (including, but not limited to, expenses incurred while
performing duties outside the general geographic area of Employee’s principle
residence).  Reimbursable expenses must be submitted to the President
and Chief Executive Officer of Employer for review on a quarterly
basis.

     

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    (c)           Other
Benefits.  During the Period of Employment, Employee also shall
be entitled to receive the following benefits:

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

    (ii)           Reasonable
sick leave;

    (iii)           Employer
paid memberships for Employee at a golf club and a social club, subject to the
approval of the President and Chief Executive Officer of Employer and subject to
nondeductible tax treatment by Employer or a reimbursement to Employee for taxes
owed by Employee in connection with such benefit;

    (iv)           Reimbursement
of the purchase price of a cellular telephone and all Employer-related business
charges incurred in connection with the use of such telephone; and

    (v)           The
use of an Employer-owned or Employer-leased automobile, the selection and
replacement of which shall be subject to the approval of Employer's President
and Chief Executive Officer (or the President and Chief Executive Officer's
designee).

    (d)           Supplemental Retirement
Benefits.  The terms and conditions for the payment of
supplemental retirement benefits shall be set forth in a separate written
agreement between the parties.

    5.           Stock
Options.  Employer shall cause the Compensation Committee of
the Board to review whether Employee should be granted options to purchase
shares of common stock of CBSI.  Such review may be conducted pursuant
to the terms of the Community Bank System, Inc. 2004 Long-Term Incentive
Compensation Program, a successor plan, or independently, as the Compensation
Committee shall determine.  Reviews shall be conducted no less
frequently than annually.

    6.           Change of
Control.

    (a)           If
Employee’s employment with Employer shall cease for any reason, including
Employee’s voluntary termination for “good reason” (as defined in paragraph 6(d)
below), but not including Employee’s termination for “cause” (as described in
paragraph 3(d) or Employee’s voluntary termination without “good reason”, within
two years following a “Change of Control” that occurs during the Period of
Employment, then:

    (i)           Employer
shall pay to the Employee the greater of (A) 300 percent of the sum of the
annual Base Salary in effect at the time of termination and the aggregate sum of
all payments made to Employee during the 12 months preceding Employee’s
termination pursuant to the Management Incentive Plan (or equivalent successor
plan), or (B) amounts of Base Salary and expected payments under the Management
Incentive Plan (or equivalent successor plan) that otherwise would have been
payable through the balance of the unexpired term of this
Agreement.  Unless Employee is a “specified employee” (as determined
in accordance with Internal Revenue Code Section 409A), the amount determined
pursuant to this paragraph 6(a)(i) shall be payable in a single lump-sum payment
within 60 days following Employee’s termination.  If Employee is a
“specified employee” (as determined in accordance with Internal Revenue Code
Section 409A), then the single lump-sum payment shall be made on the first day
of the seventh month following Employee’s termination.

    (ii)           Subject
to the applicable limitations of Internal Revenue Code Section 409A that apply
if Employee is a “specified employee” (as determine in accordance with Internal
Revenue Code Section 409A), Employer shall provide Employee with fringe
benefits, or the cash equivalents of such benefits, identical to those described
in paragraph 4(a) for a period of thirty-six (36) months following Employee’s
termination.  To the extent the benefits provided to Employee in this
paragraph 6(a)(ii) are deemed taxable benefits, Employer shall reimburse
Employee for taxes owed by Employee on the benefits and tax
reimbursement.  The reimbursement shall be made by the end of
Employee’s taxable year next following the taxable year in which Employee remits
the related taxes.

    (iii)           Employer
shall treat as immediately exercisable all unexpired stock options issued by
Employer and held by Employee that are not otherwise exercisable or that have
not been exercised so as to permit Employee to purchase the balance of CBSI
Stock not yet purchased pursuant to said options until the end of the full
exercise period provided in the original grant of the option right, determined
without regard to Employee’s termination of employment.

    (iv)           Employer
shall waive all restriction on any shares restricted stock granted to Employee
and permit Employee to dispose of such stock.

    (v)           Employer
shall pay to Employee the difference between 94% of the market value of
Employee's principle residence at the time of termination and the proceeds of
the sale of such home by Employee following his termination of employment not
later than twelve months following such termination, if Employee elects to move
outside of the general geographic area of his principle residence at the time of
termination to take other employment.  Employee must establish that
Employee was unable, despite reasonable efforts, to sell the home for a sum
equal to the market value, and Employer reserves the right to purchase the home
for a sum equal to 94% of the established market value.  For the
purposes of this subparagraph 6(a)(v), the market value of the principle
residence shall be established by averaging the values established by two
independent appraisals.  If the two appraisals differ by more than 5%,
a third appraisal shall be secured and the value shall be established by
averaging the value of the three appraisals.  Market value shall be
the greater of (A) market value determined by the appraisal and averaging
process described above as of the date of Employee’s termination of employment,
or (B) market value determined by the appraisal and averaging process described
above as of the date the sale is consummated.

     

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    (b)           Notwithstanding
any provision of this Agreement to the contrary, and except as provided in the
last sentence of this paragraph 6(b), in the event that any payment or benefit
received or to be received by the Employee in connection with a Change of
Control (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement) (all such payments and benefits being hereinafter
called “Total Benefits”) would be subject (in whole or in part) to the excise
tax imposed pursuant to Internal Revenue Code Section 4999, then the cash
severance payments provided in this Agreement shall first be reduced, and the
other payments and benefits hereunder shall thereafter be reduced, to the extent
necessary so that no portion of the Total Benefits will be subject to such
excise tax, but only if (i) is greater than or equal to (ii), where (i) equals
the reduced amount of such Total Benefits minus the aggregate amount of federal,
state and local income taxes on such reduced Total Benefits, and (ii) equals the
unreduced amount of such Total Benefits minus the sum of (A) the aggregate
amount of federal, state and local income taxes on such Total Benefits, and (B)
the amount of excise tax to which the Employee would be subject in respect of
such unreduced Total Benefits.  Notwithstanding the foregoing, and
although Employee shall not have a legally binding right to any such payment,
the Board of Directors of Employer shall have the sole discretion to waive the
limitations described in this paragraph 6(b) and/or to increase the amounts
payable pursuant to this paragraph 6 to help cover some or all of the taxes
payable by Employee as a result of the receipt of unreduced payments and
benefits pursuant to this Agreement.

    (c)           For
purposes of this paragraph 6, a "Change of Control" shall be deemed to have
occurred if:

    (i)           any
"person," including a "group" as determined in accordance with the Section
13(d)(3) of the Securities Exchange Act of 1934 ("Exchange Act"), is or becomes
the beneficial owner, directly or indirectly, of securities of Employer
representing 30% or more of the combined voting power of Employer's then
outstanding securities;

    (ii)           as
a result of, or in connection with, any tender offer or exchange offer, merger
or other business combination (a "Transaction"), the persons who were directors
of Employer before the Transaction shall cease to constitute a majority of the
Board or the board of directors of any successor to Employer;

    (iii)           Employer
is merged or consolidated with another corporation and as a result of the merger
or consolidation less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall then be owned in the aggregate by the
former stockholders of Employer, other than (A) affiliates within the meaning of
the Exchange Act, or (B) any party to the merger or consolidation;

    (iv)           a
tender offer or exchange offer is made and consummated for the ownership of
securities of Employer representing 30% or more of the combined voting power of
Employer's then outstanding voting securities; or

    (v)           Employer
transfers substantially all of its assets to another corporation which is not
controlled by Employer.

    (d)           For
purposes of this paragraph 6, "good reason" shall mean action taken by Employer
that results in:

    (i)           An
involuntary and material adverse change in Employee's title, duties,
responsibilities, or total remuneration;

    (ii)           An
involuntary and material relocation of the office from which Employee is
expected to perform his duties; or

    (iii)           An
involuntary and material adverse change in the general working conditions
(including travel requirements and clerical support) applicable to
Employee.

    By way of
example, and not limitation, the following changes, if involuntary, would
constitute "good reason" for purposes of this Agreement: (A) reducing or
eliminating Employee's authority and responsibility to implement the duties of
Chief Banking Officer as described in paragraph 2; and (B) requiring Employee to
perform his services for Employer at an office located outside of Onondaga
County and Cattaraugus County, New York prior to Employee's relocation to the
Syracuse, New York area pursuant to subparagraph 1(d) or outside of Onondaga
County, New York after such relocation.

    7.           Withholding.  Employer
shall deduct and withhold from compensation and benefits provided under this
Agreement all necessary income and employment taxes and any other similar sums
required by law to be withheld.

    8.           Covenants.

    (a)           Confidentiality.  Employee
shall not, without the prior written consent of Employer, disclose or use in any
way, either during his employment by Employer or thereafter, except as required
in the course of his employment by Employer, any confidential business or
technical information or trade secret acquired in the course of Employee's
employment by Employer.  Employee acknowledges and agrees that it
would be difficult to fully compensate Employer for damages resulting from such
disclosure or use and, accordingly, that Employer shall be entitled to temporary
preliminary injunctions and permanent injunctions to enforce this
provision.  This provision with respect to injunctive relief shall
not, however, diminish Employer's right to claim and recover
damages.  Employee covenants to use his best efforts to prevent the
publication or disclosure of any trade secret or any confidential information
concerning the business or finances of Employer or Employer's affiliates, or any
of its or their dealings, transactions or affairs which may come to Employee's
knowledge in the pursuance of his duties or employment.

     

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    (b)           No
Competition.  Employee's employment is subject to the condition
that during the term of his employment hereunder and for the period specified in
paragraph 8(c) below, Employee shall not, directly or indirectly, own, manage,
operate, control or participate in the ownership, management, operation or
control of, or be connected as an officer, employee, partner, director,
individual proprietor, lender, consultant or otherwise with, or have any
financial interest in, or aid or assist anyone else in the conduct of, any
entity or business (a "Competitive Operation") which competes in the banking
industry or with any other business conducted by Employer or by any group,
affiliate, division or subsidiary of Employer, in the states of New York and
Pennsylvania.  Employee shall keep Employer fully advised as to any
activity, interest, or investment Employee may have in any way related to the
banking industry.  It is understood and agreed that, for the purposes
of the foregoing provisions of this paragraph, (i) no business shall be deemed
to be a business conducted by Employer or any group, division, affiliate or
subsidiary of Employer unless 5% or more of Employer's consolidated gross sales
or operating revenues is derived from, or 5% or more of Employer's consolidated
assets are devoted to, such business; (ii) no business conducted by any entity
by which Employee is employed or in which he is interested or with which he is
connected or associated shall be deemed competitive with any business conducted
by Employer or any group, division or subsidiary of Employer unless it is one
from which 2% or more of its consolidated gross sales or operating revenues is
derived, or to which 2% or more of its consolidated assets are devoted; and
(iii) no business which is conducted by Employer at the Date of Termination and
which subsequently is sold by Employer shall, after such sale, be deemed to be a
Competitive Operation within the meaning of this paragraph.  Ownership
of not more than 5% of the voting stock of any publicly held corporation shall
not constitute a violation of this paragraph.

    (c)           Non-Competition
Period. If Employee's employment with Employer shall cease for any
reason during the Period of Employment as defined in paragraph 1(a) of this
Agreement, the "non-competition period" shall begin on the date the first
payment is made pursuant to the terms of this Agreement and shall end on the
date the final payment is made pursuant to the terms of this Agreement;
provided, however, that the non-competition period shall end on the date
Employee's employment ends in the event of Employee's termination for "good
reason" (as defined in paragraph 6(e)), or Employee's termination without cause
(as defined in paragraph 3(d)), within two years following a Change of Control
that occurs during the Period of Employment.

    (d)           Certain Affiliates of
Employer.  It is understood that Employee may have access to
technical knowledge, trade secrets and customer lists of affiliates of Employer
or companies which Employer's parent may acquire in the future and may serve as
a member of the board of directors or as an officer or employee of an affiliate
of Employer.  Employee covenants that he shall not, during the term of
his employment by Employer or for the period specified in 8(c) above, in any
way, directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control of, or be connected as an officer,
employee, partner, director, individual proprietor, lender, consultant or
otherwise aid or assist anyone else in any business or operation which competes
with or engages in the business of such an affiliate.

    (e)           Termination of
Payments.  Upon Employee's receipt of written notice to
Employee of the breach by Employee of any covenant under this paragraph 8,
Employer may offset and/or recover from Employee immediately any and all amounts
paid to Employee under this Agreement in addition to any and all other remedies
available to Employer under the law or in equity.

    9.           Notices.  Any
notice which may be given hereunder shall be sufficient if in writing and mailed
by certified mail, return receipt requested, to Employee at his residence and to
Employer at 5790 Widewaters Parkway, Dewitt, New York 13214, or at such other
addresses as either Employee or Employer may, by similar notice,
designate.

    10.           Rules, Regulations and
Policies.  Employee shall abide by and comply with all of the
rules, regulations, and policies of Employer, including without limitation
Employer's policy of strict adherence to, and compliance with, any and all
requirements of the banking, securities, and antitrust laws and
regulations.

    11.           No Prior
Restrictions.  Employee affirms and represents that Employee is
under no obligations to any former employer or other third party which is in any
way inconsistent with, or which imposes any restriction upon, the employment of
Employee by Employer, or Employee's undertakings under this
Agreement.

    12.           Return of Employer's
Property.  After Employee has received notice of termination or
at the end of the term hereof, whichever first occurs, Employee shall promptly
return to Employer all documents and other property in his possession belonging
to Employer.

    13.           Construction and
Severability.  The invalidity of any one or more provisions of
this Agreement or any part thereof, all of which are inserted conditionally upon
their being valid in law, shall not affect the validity of any other provisions
to this Agreement; and, in the event that one or more provisions contained
herein shall be invalid, as determined by a court of competent jurisdiction, the
court shall have authority to modify such provision in a manner that most
closely reflects the intent of the parties and is valid.  This
Agreement shall be interpreted and applied in all circumstances in a manner that
is consistent with the intent of the parties that amounts earned and payable
pursuant to this Agreement shall not be subject to the premature income
recognition or adverse tax provisions of Internal Revenue code Section
409A.  Accordingly, notwithstanding any other term or provision of
this Agreement to the contrary, distribution of benefits payable following
Employee’s termination of employment shall commence as of the date required by
this Agreement or, if later, the earliest date permitted by Internal Revenue
Code Section 409A (generally six months after termination, if Employee is a
“specified employee” within the meaning of Internal Revenue Code Section
409A).

     

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    14.           Governing
Law.  This Agreement was executed and delivered in New York and
shall be construed and governed in accordance with the laws of the State of New
York.

    15.           Assignability and
Successors.  This Agreement may not be assigned by Employee or
Employer, except that this Agreement shall be binding upon and shall inure to
the benefit of the successor of Employer through merger or corporate
reorganization.

    16.           Miscellaneous.  This
Agreement constitutes the entire understanding and agreement between the parties
with respect to the subject matter hereof and shall supersede all prior
understandings and agreements, including the Change of Control Agreement between
the parties that is scheduled to expire effective December 31,
2005.  This Agreement cannot be amended, modified, or supplemented in
any respect, except by a subsequent written agreement entered into by the
parties hereto.  The services to be performed by Employee are special
and unique; it is agreed that any breach of this Agreement by Employee shall
entitle Employer (or any successor or assigns of Employer), in addition to any
other legal remedies available to it, to apply to any court of competent
jurisdiction to enjoin such breach.  The provisions of paragraphs 6
and 8 hereof shall survive the termination of this Agreement.

    17.           Counterparts.  This
Agreement may be executed in counterparts (each of which need not be executed by
each of the parties), which together shall constitute one and the same
instrument.

    18.           Jurisdiction, Venue and
Fees.  The jurisdiction of any proceeding between the parties
arising out of, or with respect to, this Agreement shall be in a court of
competent jurisdiction in New York State, and venue shall be in Onondaga
County.  Each party shall be subject to the personal jurisdiction of
the courts of New York State.  If Employee is the prevailing party in
a proceeding to collect payments due pursuant to this Agreement, Employer shall
reimburse Employee for reasonable attorneys' fees incurred by Employee in
connection with such proceeding.  Reimbursement shall be made on or
before the last day of Employee’s taxable year following the taxable year in
which the expense was incurred.  The foregoing right of reimbursement
shall expire on the fifth anniversary of Employee’s separation
of  Employment with Employer.

    The
foregoing is established by the following signatures of the
parties.

    


    COMMUNITY
BANK SYSTEM, INC.

    


    


    By:___/s/ Mark E.
Tryniski_______

    


    Its:___President and
CEO________

    


    


    COMMUNITY
BANK, N.A.

    


    


    By:__/s/ Bernadette R.
Barber____

    


    Its:    Senior
Vice President, Chief HR Officer

    


    


    _____/s/ Brian D.
Donahue______

    BRIAN D.
DONAHUE