Document:

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                                                                   Exhibit 10.39

                       DEVELOPMENT AND SUPPLY AGREEMENT

DEVELOPMENT AND SUPPLY AGREEMENT (the "Agreement"), is made and entered into as
of this 21/st/ day of November, 2000, by and between De Nora Elettrodi SpA. an
Italian Company with its principal place of business at Milano, Italy, Via dei
Canzi 1 and its subsidiaries as specified in Exhibit A (all hereinafter referred
to as "DNE"), and Nuvera Fuel Cells, Inc., a Delaware corporation having its
principal place of business located at 35 Acorn Park, Cambridge, MA 02140,
United States of America ("Nuvera") and Nuvera Fuel Cells Europe, S.r.l., a
wholly-owned subsidiary of Nuvera and an Italian company having its principal
place of business located at via Bistolfi 35, Milan, Italy ("Nuvera Europe")
(together, the "BUYER").

                                  WITNESSETH:

WHEREAS, DNE and its subsidiaries, inter-alia De Nora North America Inc. E-Tek
Division, as specified in Exhibit A, have the capabilities of performing
Research and Development Programs in the field of Fuel Cells ("R&D"), namely in
the field of catalyzed gas diffusion electrodes ("Electrodes"), catalysts
("Catalysts"), gas diffusion or backings ("Diffusers") for use in proton
exchange membrane ("PEM") fuel cell stacks and shift catalysts ("Shift
Catalyst") for use in reformers for fuel cells systems, (collectively, "DN
Products"),

WHEREAS, DNE desires to grant exclusive access to BUYER to ongoing and future
R&D on DN Products for Fuel Cell application at no cost for BUYER, in exchange
for the validation of the new DN products resulting from R&D and DNE desires to
offer the BUYER the right to purchase exclusively ("Option") DN products
resulting from R&D (excluding Shift Catalysts), for which DNE will be the
exclusive supplier for an agreed period provided BUYER ensures reasonable
minimum purchases during that agreed period,

WHEREAS, BUYER and DNE will mutually define a validation protocol ("Protocol")
that shall be followed for the validation of DN Products and for the annual
updating of the improvement of the Specifications.

WHEREAS, DNE produces and manufactures DN Products and desires to supply BUYER
with DN Products as described in Exhibit B, meeting the specifications
("Specifications") set forth in Exhibit C, on terms no less favorable than those
under which DNE supplies or shall supply DN products to any other customer of
DNE, and DNE is willing to grant BUYER the required volumes and quantities, and,
in addition, DNE wishes to manufacture on behalf of BUYER Shift Catalyst based
on proprietary formulation of BUYER,

NOW THEREFORE, in consideration of the mutual covenants set forth herein and
other good and valuable consideration, DNE and BUYER, intending to be legally
bound, hereby agree as follows:
<PAGE>

1    RESEARCH AND DEVELOPMENT ACTIVITIES.

1.1  DNE will grant exclusive access to BUYER for the ongoing and future
     research and development ("R&D") activities related to "Electrodes",
     "Catalysts" and "Diffusers" for the use in Proton Exchange membrane
     (P.E.M.) fuel cells and "Shift Catalysts" (DN Products). For products
     resulting from R&D, once validated according to the "Protocol", the
     exclusivity provisions of this agreement as per 2.2 and 2.3 may apply, with
     the exception of Shift Catalysts for fuel processors. The purchase of Shift
     Catalysts is governed by Section 4.4. of this Agreement.

1.2  DNE will discuss with BUYER the BUYER's needs for the "PEM" improvement and
     corresponding programs.

1.3  BUYER will exclusively have access to and exclusively purchase R&D on DN
     Products from DNE. All the costs of R&D will be borne by DNE. BUYER will
     validate the DN Products resulting from R&D as per "Protocol". The
     associated costs linked to the validation activities to be conducted in
     BUYER facilities will be borne by BUYER.  For the purposes of this
     Agreement, validation shall mean the product meets the specifications and
     or requirements of BUYER.

1.5  DNE and BUYER will have no restrictions preventing either DNE or BUYER from
     conducting independent research and development on catalyzed membranes or
     catalyzed membrane/diffuser assemblies (MEAs), nor will the terms of
     exclusivity apply to these products. DNE and BUYER agree, however, to use
     best efforts to maximize reciprocal involvement in such independent R&D
     programs. Sale or purchase of these products are not covered by this
     Agreement.

2    PURCHASE AND SALE OF DN PRODUCTS; QUALITY.

2.1  BUYER will purchase DN products and DNE will sell DN products as per DNE
     catalogue on a non exclusive basis. It is intended that membranes,
     catalysed membranes and catalysed membranes/diffuser assemblies (MEA's )
     are explicitly excluded.

2.2  When BUYER validates a "DN Product" resulting from R&D, BUYER will have the
     right ("Option" to purchase exclusively such DN products resulting from
     R&D.

2.3  In case BUYER decides to exercise the "Option" for DN Products resulting
     from "R&D", after validation as per "Protocol", DNE and BUYER will
     negotiate in good faith a reasonable purchase commitment, and the exact
     terms and conditions. Should an agreement not be reached, then DNE will be
     entitled to sell that specific product to any third parties. BUYER waives
     any right to exclusivity.

2.4  Should BUYER not validate a product generated by R&D, DNE will be entitled
     to sell that specific product to any third parties. BUYER waives any right
     to exclusivity. In the future should Buyer wish to purchase the non-
     validated product, BUYER shall be granted a price determined as per Article
     4.1.
<PAGE>

2.5    Notwithstanding 2.3, DNE agrees to sell and deliver to BUYER on a non-
       exclusive basis and BUYER agrees to purchase and receive from DNE on a
       non-exclusive basis DN Products resulting from R&D at the lowest prices
       offered to its most favored customers, which in any event will be the DNE
       current market prices minus at least ten percent (10%)

2.6    In addition to the obligations of DNE set forth elsewhere in this
       Agreement, DNE's obligations are to:

(a)    Obtain all raw materials and other components and unload handle and store
       all raw materials and other components at DNE's manufacturing facilities
       at which the DN Products are manufactured;

(b)    Manufacture the DN Products;

(c)    Package the DN Products;

(d)    Prepare the DN Products for shipment;

(e)    Obtain and maintain any export license or licenses required for delivery
       of the DN Products to BUYER under this Agreement, and keep records,
       available upon request of BUYER;

(f)    Keep records available upon request of BUYER and applicable governmental
       agencies, including, without limitation, maintain records, concerning
       safety, health and environmental practices of DNE.

2.7    The DN Products supplied by DNE to BUYER under this Agreement shall
       conform at the time of shipment to the Specifications.

(a)    DNE shall test each batch of each of the DN Products after manufacturing
       and submit to the BUYER at the time of shipment of the DN Products a
       Certificate of Analysis demonstrating that the DN Products conform to the
       Specifications. Non-conforming DN Products shall be replaced by DNE at
       its own expense (including transportation costs). DNE shall notify BUYER
       of any changes in the process necessary to manufacture the DN Products to
       meet the Specifications. DNE acknowledges that BUYER may require DNE to
       produce samples of the DN Products manufactured using the changed
       process, in sufficient quantities to enable the BUYER to determine the
       effect of the change in process upon BUYER.

(b)    For the purposes of assuring BUYER the quality of the DN Products
       required under this Agreement, DNE shall permit the duly authorized
       representatives of BUYER, at any time during normal business hours and on
       reasonable time prior notice, to inspect any premises of DNE or any third
       party, including subsidiaries, contractors, partners or suppliers, where
       the DN Products, or packing of them, are manufactured or stored by or for
       DNE. In the event that such an inspection does not meet with DNE
       Specifications as per Exhibit C, DNE shall, without delay or cost to
       BUYER, take the appropriate remedial measures in order to meet the
       specifications.
<PAGE>

2.8    DNE will produce the DN Products in compliance with all applicable laws
       and regulations, with reasonable due care and in accordance with the best
       practice standards of safety. BUYER agrees that it shall comply with all
       applicable laws and regulations regarding the DN Product formulation,
       packaging, sales, use, storage, handling, disposal, labeling and
       transporation as incorporated into BUYER's Products, and any wastes
       related thereto. BUYER shall formulate, sell, use, store, handle,
       dispose, label and transport DN Products as incorporated in Nuvera
       Products with due care, in compliance with all applicable laws, and in
       accordance with good industry standards. At its option, at any time
       during the Term (the "Term), defined in Article 3, DNE upon reasonable,
       prior written notice shall be permitted, but not obligated, to enter and
       inspect those sections of BUYER's packaging and warehousing facilities
       used in the packaging, storage, testing, shipping or receiving of the
       Nuvera Products (hereinafter the "Facilities") for the purpose of
       ensuring Buyer's compliance with the provisions hereof.

2.9    DNE agrees to use its best efforts to improve the Specifications during
       the Term of the Agreement. The Specifications listed in Annex C shall be
       updated on annual basis starting from the effective date of the
       Contracts.

2.10   BUYER may have the right to use any DN trademark or trade name in
       connection with the Nuvera Products.

3      TERM, TERMINATION.

3.1    Unless earlier terminated as provided herein, the term of this Agreement
       shall be for an initial period commencing on the date hereof and ending
       on December 31, 2004 (the "Term"). The Agreement shall automatically
       renew for a one year period unless and until terminated by either party
       upon at least six months prior written notice thereof.

3.2    In the event that either party materially breaches any term of this
       Agreement and fails to cure such default within sixty (60) days after the
       date of written notice of such breach from the non-breaching party to
       the non-breaching party's reasonable satisfaction, the non-breaching
       party may thereafter immediately terminate this Agreement by written
       notice to the breaching party.

3.3    Either party shall have the right to terminate this Agreement immediately
       by giving the other party prior written notice if the other party is the
       object of a bankruptcy petition which has not been vacated within thirty
       (30) days.

4      PRICE; QUANTITIES

4.1    DN Products: BUYER will receive the lowest pricing for DN Products DNE
       -----------
       gives to its most preferred customers. In addition, DNE agrees to
       discount its catalog prices by at least ten percent (10%). The actual
       discount will be determined by the market conditions for the products,
       availability of materials, and difficulty of manufacture. At the
       beginning of every year, BUYER will communicate its annual purchases
       forecast to DNE. The actual quantities will be fixed on quarterly basis.
<PAGE>

4.2    Minimum Purchase. For any DN product resulting from R&D for which BUYER
       ----------------
       is granted exclusivity, BUYER agrees to commit to purchase minimum
       quantities of the DN Products. The final quantities available to BUYER,
       however, will be subject to mutual agreement by BUYER and DNE, along with
       the relevant delivery terms. BUYER shall exclusively purchase the DN
       Product from DNE at the agreed upon unit prices, quantities and schedule
       and for agreed upon periods that could exceed the duration of this
       Agreement.

       BUYER agrees to purchase from DNE additional quantities of DN products
       provided that DNE product performances, terms and conditions are
       equivalent to those of competing suppliers for equivalent products.

4.3    Right of first refusal BUYER agrees not to purchase from third parties
       ----------------------
       products that are equivalent and/or comparable to DN products, provided
       that DN products performances and DNE terms and conditions, including
       price, meet or exceed those of competing suppliers.

4.4    Shift Catalyst: Prices shall be mutually agreed upon, taking into
       --------------
       consideration BUYER's requirements; the final price shall be based on the
       cost plus concept based on the following criteria:

       .   Raw material cost
       .   Direct manpower
       .   Outsourcing cost
       .   In-house production machinery
       .   Annual requirements
       .   Quality control and shop tests
       .   Manufacturing overhead
       .   Packing and transportation

4.5    In the event that BUYER requests an increased supply of the DN Product,
       BUYER and DNE shall determine any price adjustment that may be warranted
       given the scope and size of the proposed increased purchase of the DN
       Products. BUYER and DNE agree to negotiate in good faith any price
       adjustment.

4.6    All taxes and charges imposed by governmental authorities, after BUYER
       acquires title to the DN Products, on the selling, transporting,
       handling, storing and disposing of DN Products and wastes related
       thereto, (except income taxes based on DNE's gross income) shall be at
       BUYER's expense.
<PAGE>

5      PAYMENT

       Payment for the DN Products purchased by BUYER under this Agreement will
       be within thirty (30) days of the date of invoice or unless otherwise
       agreed between DNE and the BUYER (the "Net Due Date"). Payment shall be
       made in the local currency of DN Products' manufacturer, unless
       otherwise agreed between DNE and the BUYER. In the event BUYER fails to
       pay in full the balance due in accordance with the invoice on or before
       the Net Due Date, DNE at its option after thirty days prior written
       notice of BUYER's failure to pay may suspend further deliveries under
       this Agreement and may charge BUYER an interest fee equal to the Prime
       Lending Rate on the outstanding balance.

6      FORECASTS; PURCHASE ORDERS
       Except as may be mutually agreed by the parties, DNE shall not be
       required to supply in any calendar quarter more than one hundred fifty
       percent (150%) of the final forecast for any such calendar quarter nor
       less than seventy five percent (75%) of the final forecast for any such
       calendar quarter.

7      HEALTH AND SAFETY INFORMATION.
       Each party shall make available to the other summaries of all technical,
       toxicological, environmental, health and safety information and data,
       and information and data relating to customer complaints and governmental
       action, inquiry or investigation relating to its products of which it has
       knowledge. Each party shall hold all such information and data in
       confidence in accordance with the terms and conditions of Section 10 of
       this Agreement.

8      WARRANTIES AND LIMITATION OF LIABILITY.

8.1    DNE warrants that any of the DN Products sold hereunder shall meet the
       "Specifications" in Exhibit C at the time such DN Products are delivered
       to BUYER. DNE makes no other representation or warranty of any kind,
       express or implied, as to merchantability, fitness for a particular
       purpose, or any other matter whatsoever. Extension of such a
       warranty terms can be agreed on a case by and between BUYER and DNE

8.2    All claims for damage, shortage, non-delivery and obvious defects shall
       be deemed waived unless made in writing and received by DNE within - one
       hundred twenty (120) days after BUYER's receipt of any of the DN Products
       in respect to which such claim is made, or if the claim is for non-
       delivery within sixty (60) days after such DN Product was to have been
       delivered. All other claims for any cause whatsoever (whether such cause
       is based in contract, negligence, strict liability, other tort or
       otherwise) shall be deemed waived unless made in writing and received by
       DNE within one hundred eighty (180) days after BUYER's receipt of any of
       the DN Products. Failure of DNE to receive written notice of any such
       claim within the applicable time period shall be deemed an absolute and
       unconditional waiver by BUYER of such claim, known or unknown.

8.3    BUYER's exclusive remedy for its damages based on DNE's breach of the
       Agreement (including breach of warranty) shall be for direct damages.

8.4    In no event shall either party be liable for special, incidental or
       consequential damages.
<PAGE>

9       EXCUSE OF PERFORMANCE.

        Neither party shall be subject to any liability for delay in performance
        or nonperformance as a result of fire, flood, natural catastrophe,
        strike, labor trouble, accident, riot, act of governmental authority or
        compliance with government request, act of God, or other contingencies
        and circumstances beyond its reasonable control interfering with the
        production, supply, transportation, or consumption of any of the DN
        Products, or with the supply of any raw materials (including energy
        sources) used in connection therewith. Each party shall give the other
        party prompt notice of such occurrence, the nature thereof and the
        extent to which the affected party will be unable fully to perform its
        obligations hereunder. Each party further agrees to use all reasonable
        efforts to correct the condition as quickly as possible. Notwithstanding
        any other provision of this Agreement to the contrary, if this Agreement
        is terminated by either party because of any of the above mentioned
        causes, DNE agrees to sell to BUYER and BUYER agrees to buy from DNE at
        the date of such termination existing inventory of the applicable,
        undamaged, commercial quality DN Products at DNE's plant as of the
        termination date of this Agreement at the agreed price in an amount not
        to exceed the quantity of BUYER's existing order in place on the date of
        such termination.

10      CONFIDENTIALITY.

10.1    Any technical, health, environmental and safety, manufacturing, market
        or customer information, or price or cost related information
        communicated to one party by the other, under any provision of this
        Agreement, whether (a) in writing, (b) verbally, or (c) visually
        observed (if the latter two are confirmed in writing as being
        confidential within one (1) month thereafter) (hereinafter "Confidential
        Information") shall be considered confidential at the time of
        communication and shall not be disclosed to any third party, nor used by
        the recipient party other than as provided in this Agreement, during the
        Term of the Agreement and for the period of seven (7) years following
        the date of termination of this Agreement. The recipient shall use the
        same degree of care protecting this Confidential Information as it
        applies to its own confidential information. This Section 10 shall not
        apply to:

i)      Confidential Information already in the public domain, or released to
        the public through no fault of the recipient;

ii)     Confidential Information already known to the recipient except through
        prior disclosure by DNE or which is developed by the recipient
        independently of its relationship to the other party hereunder, as both
        can be documented in writing;

iii)    Confidential Information acquired by the recipient from a third party
        entitled to disclose it; and

iv)     Confidential Information the recipient is legally required to disclose.
<PAGE>

10.2    BUYER, its subsidiaries, contractors, partners and suppliers agrees not
        to analyze or disclose any material supplied by DNE or third Party under
        this Agreement.

10.3    DNE, its subsidiaries, contractors, partners and suppliers agrees not to
        analyze or disclose any material supplied by BUYER under this Agreement.

11      INTELLECTUAL PROPERTY RIGHTS.

11.1    DNE shall retain, on behalf of itself or the original owner, title to
        any intellectual property rights, including but not limited to patents,
        industrial designs, copyrights and trademarks, in the DN Products.

11.2    BUYER shall in any country of the world under its own name and
        trademarks or under DNE's trade marks, have the right to distribute
        directly or indirectly, sell or otherwise dispose of the DN Products as
        incorporated into or merged with Nuvera Products.

11.3    DNE shall not assert any intellectual property rights or applications
        thereof (including but not limited to patents, industrial designs,
        copyrights and trademarks) against the BUYER for the use, sale,
        distribution or other disposal of any of the DN Products as incorporated
        or merged with Nuvera Products.
<PAGE>

12      INDEMNIFICATION.

12.1    Except to the extent provided in Section 12.3 or elsewhere under this
        Agreement, BUYER shall indemnify, defend and hold harmless DNE and its
        direct and indirect affiliates from and against any and all losses,
        damages, claims, liability, and related costs and expenses (including
        reasonable attorneys' fees) based upon or arising out of (a) BUYER's
        negligent acts or omissions, (b) Third Party losses that directly result
        from BUYER's willful tampering with or modification to DN Products; (c)
        BUYER's breach of the terms of this Agreement.

12.2    Except to the extent provided in Section 12.3 or elsewhere under this
        Agreement, DNE shall indemnify, defend and hold harmless BUYER and its
        direct and indirect affiliates from and against any and all losses,
        damages, claims, liability, and related costs and expenses (including
        reasonable attorneys' fees) based upon or arising out of (a) DNE's
        negligent acts or omissions, (b) DNE's packaging, selling, using,
        storing, handling, labeling, transporting or disposing of the DN
        Products and any wastes resulting therefrom, and (c) DNE's breach of the
        terms of this Agreement.

12.3    Notwithstanding the provisions of Sections 12.1 and 12.2, if the conduct
        of both parties has contributed to the loss, damage, claim, liability,
        cost or expense for which one party hereunder (the "Indemnitee") seeks
        indemnification from the other party hereunder (the "Indemnitor") under
        Section 12.1 or Section 12.2, as the case may be, then Indemnitor's
        liability to Indemnitee hereunder shall be reduced in proportion and to
        the extent to which Indemnitee's conduct contributed to such liability.

12.4    In the case of a claim made against a party subject to indemnification
        hereunder, the Indemnitor shall have the right to manage and control the
        defense or settlement of such claim. The parties shall cooperate in
        defending such claims and the Indemnitee shall have the right to
        participate in the defense of such claims at its own cost. The
        Indemnitee shall not settle or compromise any claim subject to
        indemnification hereunder without the prior written consent of the
        Indemnitor.

12.5    DNE agrees to defined and indemnify and hold BUYER harmless from
        liability for costs and damages awarded against BUYER for infringement
        of any patent claims covering the DN Products in the form in which it is
        furnished hereunder, provided that said liability results from BUYER's
        use or sale of the DN Products furnished and provided that BUYER has
        given DNE prompt notice of any suit for infringement brought against
        BUYER and has permitted DNE to defend such suit.

13      ASSIGNMENT

        Neither party may assign its rights or delegate its performance
        hereunder, whether by operation of law or otherwise, without the prior
        written consent of the other party, which consent will not be
        unreasonably withheld or delayed, except, however, DNE and BUYER may
        assign their respective rights or delegate their respective performance
        hereunder to any affiliate or to any purchaser of all or substantially
        all of the assets of the business to which this Agreement relates
        without the consent of the other party, and any attempted assignment or
        delegation without such consent when required, except as otherwise
        provided herein, shall be void.
<PAGE>

        In the event that such consent is withheld, the party desiring to assign
        this Agreement may terminate this Agreement upon thirty (30) days'
        written notice.

14      MISCELLANEOUS.

14.1    This Agreement contains all the terms and conditions of sale and
        purchase of DN Products for use in Nuvera Products and embodies and
        integrates the entire understanding of the parties with respect thereto.
        All prior agreements relating to the same matter are hereby terminated.
        No modification, extension or release from any provision hereof shall be
        effected by mutual agreement, acknowledgment, acceptance or purchase
        order, invoice or shipping instructions forms, or otherwise, unless the
        same shall be in writing, signed by the party to be bound and
        specifically described as an amendment or extension of this Agreement.

14.2    No waiver by either DNE or BUYER with respect to any breach or default
        or of any right or remedy, and no course of dealing shall be deemed to
        constitute a continuing waiver of any other breach or default or of any
        other right or remedy, unless such waiver be expressed in writing signed
        by the party to be bound. Except as otherwise expressly limited herein,
        all remedies shall be cumulative and shall be in addition to any remedy
        available at law, in equity or by statute.

14.3    This Agreement and any rights and obligations therein and performance
        hereunder shall take effect and be construed and governed by the laws
        of the State of Delaware without regard to its principles of conflicts
        of laws.

14.4    In the performance of this Agreement, BUYER and DNE will be considered
        an independent contractor, and nothing herein shall be construed to the
        contrary. Neither party shall exercise control over any of the other
        party's employees. Nothing in this Agreement shall make the other party
        the partner, agent or representative of the other. Neither party shall
        assume or create any obligations or responsibility, express or implied,
        on behalf of or in the name of the other party, or bind the other party
        in any manner or thing whatsoever.

14.5    Notices hereunder shall be in writing and either delivered personally or
        sent by documented overnight delivery service or registered or certified
        mail, postage prepaid, to the party at the address set forth in the
        preamble to this Agreement or at such other address as may be specified
        in writing by such party. Any such notice shall be deemed to have been
        given as of the date received, in the case of personal delivery, or on
        the date shown on the receipt or confirmation of delivery therefor, in
        all other cases.

14.6    The headings and titles of this Agreement are inserted for convenience
        only and shall not be deemed a part hereof or effect the construction
        or interpretation of any provision hereof.
<PAGE>

        IN WITNESS WHEREOF, DNE and BUYER have caused their duly authorized
        representatives to execute this Agreement as of the day and year first
        above written.

                                       DE NORA ELETTRODI SpA.

                                       By: /s/ R. Gazzaniga
                                           ------------------------------
                                           Name: R. GAZZANIGA
                                           Title: MANAGING DIRECTOR

                                       NUVERA FUEL CELLS, INC.

                                       By: ______________________________
                                           Name:
                                           Title:

                                       NUVERA FUEL CELLS EUROPE, s.r.L

                                       By: /s/ Michele Tettamanti
                                           ------------------------------
                                           Name:  Michele Tettamanti
                                           Title: SENIOR VICE PRESIDENT

EXHIBIT A - DNE and SUBSIDIARIES

EXHIBIT B - DN Products as of November 30, 2000

EXHIBIT C - Specifications for DN Products, as of November 30, 2000
<PAGE>

Exhibit A

                           DE NORA ELETTRODI S.p.A.

                            WORLD WIDE SUBSIDIARIES

E-TEK - U.S.A. (a division of De Nora North America) -
39 Veronica Avenue - SOMERSET, N.J. 08873 - U.S.A.
Tel. +1 732 5455100 - Fax +1 732 5455170
E-Mail: technical.etek@denora.com
        sales.etek@denora.com
        ---------------------
Website: www.etek-inc.com

DE NORA NORTH AMERICA, Inc.
39 Veronica Avenue - SOMERSET, N.J. 08873 - U.S.A.
Tel. +1 732 5455100 - Fax +1 732 5455170

E-Mail: denora.northamerica@denora.com

DE NORA DO BRASIL LTDA.
Av. das Nacoes Unidas, 12.551- 18(degrees) andar - conjunto 1812
Brooklin - CEP 04578-903 - Sao Paulo - SP - BRASIL
Tel. +55 11 30437611 - Fax +55 11 30437618
E-Mail: denorabrasil@denora.com.br

Factory:
Avenida Jerome Case n(degrees) 1959
Eden - CEP 18087 - 370 - Sorocaba/SP - Brasil
Tel. +55 15 225 2165 - Fax +55 15 225 1033
E-Mail: denorabrasil.fabrica@denora.com.br

TITANOR COMPONENTS LTD.
Plot Nos. 184, 185 & 189 - Kundaim Industrial Estate, Kundaim - 403115 GOA -
INDIA
Tel. +91 832 395340/41/42/43; 395634 / 35 - Fax +91 832 395003 / 395009 /
423197
E-Mail: titanor@goal.dot.net.in
Website: www.titanor.com

DE NORA FAR EAST PTE LTD.
491B River Valley Road, #20-01 Valley Point Office Tower - SINGAPORE 248373
Tel. +65 8349561 - Fax +65 8875025 / 8875026
E-Mail: denorafe@pacific.net.sg

JIANGYIN DE NORA TIAN LI Electrochemical Technology Co. Ltd.
Ligang Town, Jiangyin City, JIANGSU PROVINCE 21444, P.R. CHINA
Tel. +86 510 6631369 - Fax +86 510 6631315
E-Mail: DN.jvc@public1.wx.js.cn

DE NORA DEUTSCHLAND GmbH
Industriestrasse 17, D-63517 Rodenbach - DEUTSCHLAND
Tel. +49 6184 5980 - Fax +49 6184 598183
E-Mail: denora@t-online.de
        ------------------
<PAGE>

                                  Exhibit  B

--------------------------------------------------------------------------------
  DN Products as of November 30, 2000

     Commercial Products

         A.    V3 ELAT(R) anodes and cathodes containing supported platinum
               catalyst

         B.    V3 ELAT(R) anodes containing supported platinum:ruthenium alloy
               catalyst

         C.    V3 ELAT without catalyst ("diffuser" for Membrane Electrode
               Assemblies)

         D.    Supported Catalysts for anode or cathode: 20%, 30%, and 40%
               platinum on Vulcan XC-72

         E.    Supported Catalysts for anode in presence of carbon monoxide: an
               alloy of Pt:Ru on Vulcan XC-72 at 20%, 30%, and 40% metal on
               carbon.

         F.    Other DN Products as per catalogue available at the Web site:
               www.etek-inc.com as of the date of signature of this contract
               ----------------

  DN Products resulting from R&D

           May be derived but not limited to: Pt-Mo catalyst (US Patent Serial
         No.09/271,664) 2Shift Catalyst (Nuvera formulation)
<PAGE>

                                   Exhibit C

--------------------------------------------------------------------------------

  Specifications

1)   ELECTRODES
---------------

Pt GAS DIFFUSION ELECTRODE as covered by US Pat 6,103,077
 .  Commercial single sided ELAT V3
 .  Minimum Specific Performance Certification: 3.92 kW/m/2/ (@ 6 kA/m/2/, 1.5
   bar a), 2.16 kW/m/2/ (@ 3 kA/m/2/, 1,5 bar), based on membrane area.
 .  Performance Criteria: as per document QCPt-16 revision 1, dated October 12,
   2000 as a modification of QC-60 revision 2, dated Sept. 16, 1999. Subsequent
   revisions to be approved in writing by DNE and BUYER
 .  OPTIONS: 1) Coated with Nafion(R) ionomer, according to document SPR-NAF-01,
   dated May 19, 2000; 2) as a precut component; or 3) as a rolled good
   available for further processing

Pt-Ru GAS DIFFUSION ELECTRODE as covered by US Pat 6,103,077
 .  Commercial single sided ELAT V3 Anode
 .  Minimum Specific Performance Certification (Pure Hydrogen): 3.92 kW/m/2/ (@
   6 kA/m/2/, 1,5 bar a), 2.16 Kw/m/2/ (@ 3 kA/m/2/, 1,5 bar a), based on
   membrane area
 .  Performance criteria: as per document QCPtRu-16 revision 1, agreed September
   20, 2000 as a modification of QC-60 revision 2, dated Sept 16, 1999.
   Subsequent revisions to be approved in writing by DNE and BUYER
 .  OPTIONS: 1) Coated with Nafion(R) ionomer, according to document SPR-NAF-01,
   dated May 19, 2000; 2) as a precut component; or 3) as a rolled good
   available for further processing

2)   DIFFUSERS
--------------

 .  Commercial single sided ELAT V3C, un-catalysed (acceptance criteria and
   standard catalyzed membrane configuration under discussion)
<PAGE>

3.   Other COMMERCIAL PRODUCTS
------------------------------
specifications s per catalogue available at WEB site: www.etek-inc.com as of the
                                                      ----------------
date of signature of this contract

NOTE: Specifications to be updated on a yearly basis<PAGE>

                                                                    Exhibit 10.3
                                                                    ------------

                             EMPLOYMENT AGREEMENT
                             --------------------

                  This sets forth the Employment Agreement made effective as of
_______________, 2001 between (i) COMMUNITY BANK SYSTEM, INC., a Delaware
corporation and registered bank holding company, and COMMUNITY BANK, N.A. (the
"Bank"), a national banking association, both having offices located in
___________ (collectively, the "Employer"), and (ii) STEVEN R. TOKACH, an
individual currently residing in ________________, Pennsylvania ("Employee").

                                  WITNESSETH
                                  ----------

                  WHEREAS, pursuant to an Agreement and Plan of Merger between
Community Bank System, Inc. (the "Corporation") and First Liberty Bank Corp.
(the "Seller"), dated November 29, 2000 (the "Agreement and Plan of Merger"),
the Corporation and the Seller have agreed to a merger (the "Merger") of the
Seller with the Corporation effective as of the closing date specified in the
Agreement and Plan of Merger (the "Closing Date") and a merger of First Liberty
Bank & Trust, a wholly-owned subsidiary of the Seller ("First Liberty Bank"),
with the Bank; and

                  WHEREAS, the Employee is presently a party to an amended and
restated employment agreement dated October 25, 2000 (the "First Liberty
Employment Agreement") with First Liberty Bank; and

                  WHEREAS, in connection with the Merger, the Employee would be
entitled to resign and receive the benefits and payments provided for under
Section 6 of the First Liberty Employment Agreement; and

                  WHEREAS, the Employer wishes to employ the Employee to secure
for itself the services of the Employee for a period following the Closing Date;
and

                  WHEREAS, the Employee is willing to defer receipt of the
benefits and payments provided for under Section 6 of the First Liberty
Employment Agreement and accept employment with the Employer on the terms and
conditions hereinafter set forth.

                  NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>

     1.       Employment.
              ----------

              (a) Term. Employer shall continue to employ Employee, and Employee
                  ----
shall continue to serve for a term commencing on the Closing Date and ending on
the day immediately preceding the third anniversary date of the Closing Date
("Period of Employment"), subject to termination as provided in Paragraph 3
hereof.

              (b) Salary. During the Period of Employment, Employer shall pay
                  ------
Employee base salary at an annual rate of One Hundred Sixty-Five Thousand
Dollars ($165,000) ("Base Salary"). Employer agrees to review the performance of
the Employee on a periodic basis, and may increase the Base Salary provided
above, upon approval of the Board of Directors of the Employer. Any increase in
the Base Salary granted shall become part of the Base Salary, and shall remain
in effect throughout the term of this Agreement. 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 awards pursuant to the terms of the Management Incentive Plan which
has been approved by the Board of Directors of Employer to cover key personnel
of Employer. Upon termination of Employee's employment pursuant to subparagraph
3(a), 3(b), 3(c) or 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.

     2.       Duties During the Period of Employment. Employer shall employ
              --------------------------------------
Employee, and Employee shall serve in such executive and managerial capacities
and shall have such responsibilities, duties and authority as may, from time to
time, be assigned to Employee by and under the authority or delegated authority
of the Board of Directors of the Employer. Employee shall be employed as and
shall have the title of President and Chief Executive Officer of the division of
the Bank operating in the market areas in Pennsylvania previously served by
First Liberty Bank. In addition, Employee agrees to render such services and
perform such other duties for and on behalf of any subsidiary or affiliated
entity of the Employee as may be requested from time to time by the Board of
Directors of the Employer. In his employment, Employee agrees to discharge his
duties to the best of his abilities and to devote his full time and

                                       2
<PAGE>

attention to the business and affairs of the Employer at its offices of
business. Employee shall not be required to relocate the principal place of
performance of his duties under this Agreement beyond a radius of fifty (50)
miles from Scranton, Pennsylvania.

     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 Employer'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 (i) 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 and (ii) shall pay to such designated beneficiary within thirty (30)
days of such termination the severance amount provided for in paragraph 9.
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 held by Employee that are
not exercisable or that have not been exercised, so as to permit the Beneficiary
to purchase the balance of Corporation capital stock not yet purchased pursuant
to said options until the end of the exercise period provided in the original
grant of the option right.

              (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 (the
"Disability Period") shall constitute disability. The determination of
disability shall be made by a physician selected by Employer and a physician
selected by Employee; provided, however, that if the two physicians so selected
shall disagree, the determination of disability shall be submitted to
arbitration in accordance with the rules of the American Arbitration Association
and the decision of the arbitrator shall be binding and conclusive on Employee
and Employer. During the Disability Period, Employee shall be

                                       3
<PAGE>

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, workers'
compensation law, or any other benefit program or arrangement). Upon termination
pursuant to this disability provision, (i) Employer shall pay to Employee within
thirty (30) days of such termination the severance amount provided for in
paragraph 9 and (ii) Employee shall be free to dispose of any restricted stock
granted to Employee. Additionally, Employer shall 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 the Employee to
purchase the balance of Corporation's capital stock not yet purchased pursuant
to said options until the end of the exercise period provided in the original
grant of the option right.

              (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 or director 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 (x) from any transaction to which such
     company is a party or (y) 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 of Directors of Employer;

                  (iii) Unreasonable neglect or refusal to perform the duties
     assigned to Employee under or pursuant to this Agreement, unless cured
     within 60 days;

                  (iv)  Conviction of a crime involving moral turpitude;

                                       4
<PAGE>

                  (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 failure to follow the reasonable, written
     instructions of the Board of Directors of Employer, provided that the
     instructions do not require Employee to engage in unlawful conduct; or

                  (vii)  Any 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; and further provided, however, that Employer shall in all events
pay to Employee within thirty (30) days of such termination the severance amount
provided for in paragraph 9 and provide to Employee the other benefits provided
in paragraph 9.

              (e) Termination For Reasons Other Than Cause. In the event
                  ----------------------------------------
Employer terminates Employee prior to the end of the Period of Employment for
reasons other than cause, Employee shall be entitled to severance 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 payable through the balance of the unexpired
term of this Agreement.

              (f) Employer shall have the right of first refusal to purchase
from Employee or Employee's estate, shares of Corporation capital stock acquired
pursuant to the exercise of stock options after date of termination, in the
event Employee or Employee's estate elects to dispose of or transfer such
acquired shares. Such right of first refusal shall expire ten years from the
date of termination.

     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

                                       5
<PAGE>

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. Reimbursable expenses must be
submitted to the President and CEO 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 membership for Employee at the Glen Oak or
     Glen Maura Country Club, subject to nondeductible tax treatment by Employer
     or a reimbursement to Employee for taxes owed by Employee in connection
     with such benefit; and

                  (iv)  The use of an Employer-owned automobile of Employee's
     choice, the purchase and replacement of which shall be subject to the
     approval of the Personnel Committee of the Board of Directors of Employer.

                                       6
<PAGE>

     5.       Stock Options. Employer shall cause the Personnel Committee of the
              -------------
Board of Directors of Employer to review whether Employee should be granted
options to purchase shares of comon stock of Corporation. Such review may be
conducted pursuant to the terms of the Corporation's 1996 Long-Term Incentive
Compensation program or independently, as the Personnel Committee shall
determine. Reviews shall be conducted no less frequently than annually.

     6.       Change of Control.
              -----------------

              (a) If Employee's employment with Employer (as an employee) shall
cease for any reason, including Employee's voluntary termination but not
including Employee's termination for "cause" (as described in paragraph 3(d)),
within two years following a Change of Control that occurs during the Period of
Employment, Employer shall:

                  (i)   Retain the services of Employee, on an independent
     contractor basis, as a consultant to Employer for a period of no less than
     36 months at an annual consulting fee rate equal to Employee's Base Salary
     in effect at the time of Employee's termination, plus an amount equal to
     the Management Incentive paid to the Employee in the year previous to the
     Change of Control;

                  (ii)  Provide Employee with fringe benefits, or the cash
     equivalent of such benefits, identical to those described in paragraph 4(a)
     for the period during which Employee is retained as a consultant pursuant
     to (i) above. To the extent the benefits provided to Employee in 6(a)(ii)
     above are deemed taxable benefits, Employer shall reimburse Employee for
     taxes owed by Employee on the benefits and tax reimbursement; and

                  (iii) Treat as immediately exercisable all unexpired stock
     options described in paragraph 5 that are not otherwise exercisable or that
     have not been exercised and permit Employee to dispose of any restricted
     stock granted to Employee.

                  (iv)  Subject to Employer's right to make the single lump sum
     payment described in paragraph 6(a)(v) below, if any portion of the amounts
     paid to, or value received by, Employee following a Change of Control
     (whether paid or received pursuant to this paragraph 6 or otherwise)
     constitutes an "excess parachute payment"

                                       7
<PAGE>

     within the meaning of Internal Revenue Code Section 280G, then the parties
     shall negotiate over the restructuring of payment dates and/or methods (but
     not payment amounts) to minimize or eliminate the application of Internal
     Revenue Code Section 280G. If an agreement between Employer and Employee to
     restructure payments cannot be reached within 60 days of the date the first
     payment is due under this paragraph 6, then payments shall be made without
     restructuring. Subject to paragraph 6(a)(v), Employee shall be responsible
     for all taxes and penalties payable by Employee as a result of Employee's
     receipt of an "excess parachute payment."

             (v) Notwithstanding the foregoing of this paragraph 6(a), the Board
     of Directors of Employer may elect, in its sole discretion, to pay all
     benefits due Employee pursuant to this paragraph 6 in a single lump sum
     payment within 90 days following a Change of Control and Employee's
     termination of employment with Employer. In the event a single lump sum
     payment is made pursuant to the foregoing sentence, the amount of the
     payment shall be increased to the extent necessary to hold Employee
     harmless from any tax liability attributable to such single lump sum
     payment.

         (b) As provided in paragraph 6(a) above, Employee may voluntarily
terminate his employment with Employer within two years following a Change of
Control, and receive all of the payments specified in 6(a) above. In the event
of such a voluntary termination, the payments specified in paragraph 6(a)(i)
shall be reduced by any non-Employer related wages or self-employment income
derived (or, in the case of a single lump sum payment, reasonably expected to be
derived) by Employee during the consulting period.

         (c) For purposes of 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

                                       8
<PAGE>

     were directors of Employer before the Transaction shall cease to constitute
     a majority of the Board of Directors of Employer or 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.

         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 the breach or threatened breach of the foregoing
provision and, accordingly, that Employer shall be entitled to temporary
preliminary injunctions and permanent injunctions to enforce such 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 an of its or their dealings, transactions or affairs
which may come to Employee's knowledge in the pursuance of his duties or
employment.

                                       9
<PAGE>

         (b) No Competition. Employee's employment is subject to the condition
             --------------
that during the term of his employment hereunder and for a period of 12 months
following the date of termination of his employment (the "Date of Termination"),
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 any area or market where such business is being conducted at the
Date of Termination. 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) 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 a period of 12 months
thereafter, 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

                                      10
<PAGE>

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.

         (d) Termination of Payments. Upon the breach by Employee of the
             -----------------------
confidentiality or nonsolicitation covenants under this paragraph 8, Employer
may offset and/or recover from Employee immediately any and all severance
benefits paid to Employee under paragraph 3(e) or 9 hereof in addition to any
and all other remedies available to Employer under the law or in equity.

         (e) The no competition provisions of paragraphs 8(b) and 8(c) shall not
apply if Employee's employment ceases within the two year period following a
Change of Control within the meaning of paragraph 6 or if the Employee's
employment terminates with or without cause. Notwithstanding the foregoing, in
the event that the Employee's employment terminates with or without cause (other
than within two years following a Change of Control), for a period of
twenty-four (24) months following such termination, Employee shall not, directly
or indirectly:

             (i)  solicit the sale of, or sell, any financial services or
     products, including but not limited to, any financial services or products
     similar to those offered by Employer or its affiliates, to any person, firm
     corporation, or enterprise who or which were customers or clients of
     Employer or its affiliates during the period of the Employee's employment;
     provided, however, that the foregoing restrictions shall not apply to (1)
     advertising, solicitations or marketing campaigns or other efforts
     undertaken by a subsequent employer of Employee not primarily directed to,
     or targeted at, such customers or clients, and (2) responses to unsolicited
     inquiries of such customers or clients; and

             (ii) solicit, offer employment to, or take any action intended or
     which would reasonably be expected to have the effect of causing any
     employee of Employer or any of its affiliates to terminate such employment
     or accept employment or become affiliated with, or provide services for
     compensation in any capacity whatsoever to, any entity that directly or
     indirectly competes with Employer or any affiliates in any market area in
     which any of them is still active,

                                      11
<PAGE>

     9.  First Liberty Employment Agreement Severance Benefits.
         -----------------------------------------------------

         (a) The Employer acknowledges that the Employee would be entitled to
certain severance payments and continuation of benefits under Section 6 of the
First Liberty Employment Agreement as a result of the Merger, which payments and
benefits the Employee has agreed to defer in connection with the Merger and the
execution of this Agreement. The Employer also acknowledges and agrees that, in
the event that the Employee's employment terminates at any time and for any
reason, including a termination for cause, (i) the Employer shall pay as
severance to the Employee, or his designated beneficiary, an amount equal to the
Employee's Base Salary in effect on the Closing Date multiplied by two (2), such
payment to be made to the Employee in a lump-sum within fifteen (15) days after
the date of termination and (ii) for a period of two (2) years following the
date of termination the Employee shall receive a continuation of all life,
disability, medical insurance and other normal benefits in effect at any time
during the two (2) years prior to his termination of employment, or if the
Employer cannot provide such benefits because the Employee is no longer an
employee, a dollar amount equal to the cost to the Employee of obtaining such
benefits (or substantially similar benefits). In the event that the payment and
benefits to be provided to the Employee, or his designated beneficiary, under
this paragraph 9 are duplicative of any payments and benefits to be provided to
the Employee under any other paragraph of this Agreement (including without
limitation, paragraph 3 or 6), such other payment shall be reduced and such
other benefits shall be eliminated to the extent, and only to the extent, of
such duplication. By way of an example, in the event that Employee's employment
hereunder shall terminate following the occurrence of a Change of Control and
Employee shall elect to receive payments and benefits under paragraph 6 of this
Agreement, then Employee (or his designated beneficiary) shall not be entitled
to receive any payments or benefits under this paragraph 9 in connection with
such termination.

         (b) The Employee shall not be required to mitigate the amount of any
payment or benefit provided for in this paragraph 9 by seeking employment or
otherwise. Except as otherwise provided in the penultimate sentence of paragraph
9(a) above, no amounts or benefits payable or to be provided to the Employee
under this paragraph 9 shall be reduced by or offset against any other amounts
paid or payable to, or received or to be received, by the Employee from any
source, including, without limitation, another employer.

                                      12
<PAGE>

     10. 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.

     11. Rules, Regulations and Policies. Employee shall abide by and comply in
         -------------------------------
all material respects with all of the rules, regulations, and policies of
Employer of which he has actual knowledge or he reasonably should have known,
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.

     12. No Prior Restrictions. Employee affirms and represents that Employee is
         ---------------------
under no obligation 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.

     13. 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 forthwith return to Employer all documents and other property in his
possession belonging to Employer.

     14. 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 contained herein shall be invalid, as determined by a court
of competent jurisdiction, this instrument shall be construed as if such invalid
provisions had not been inserted.

     15. 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.

     16. 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.

     17. Miscellaneous. This Agreement constitutes the entire understanding and
         -------------
agreement between the parties with respect to the subject matter hereof and
shall supersede all

                                      13
<PAGE>

prior understanding and agreements, including the First Liberty Employment
Agreement. 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, 8, 9, 10 and 13 hereof shall survive the
termination of this Agreement.

     18. 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.

     19. 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 the Commonwealth of Pennsylvania. If
Employee is a party in a proceeding to collect payments due pursuant to this
Agreement and prevails in collecting payments due in the proceeding or
settlement of the proceeding, Employer shall reimburse Employee for reasonable
attorneys' fees incurred by Employee in connection with such proceeding.

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

                                            COMMUNITY BANK SYSTEM, INC.

                                            By:
                                               ---------------------------------

                                            Attest:
                                                   -----------------------------

                                            COMMUNITY BANK, N.A.

                                            By:
                                               ---------------------------------

                                            Attest:
                                                   -----------------------------

                                                                          (SEAL)
                                            ------------------------------
                                                      ("Employee")

                                      14

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