S-4/A

As filed with the Securities and Exchange Commission on September 11, 2003

Registration No. 333-107949

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Community Bank System, Inc.

(Exact name of registrant as specified in its charter)

Delaware	6712	16-1213679
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

5790 Widewaters Parkway

DeWitt, New York 13214

(315) 445-2282

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Sanford A. Belden

President and Chief Executive Officer

Community Bank System, Inc.

5790 Widewaters Parkway

DeWitt, New York 13214

(315) 445-2282

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:

George J. Getman, Esq.
Bond, Schoeneck & King, PLLC
One Lincoln Center
Syracuse, New York 13202-1355
(315) 218-8000 J. Roger Williams, Jr., Esq.
Dilworth Paxson LLP
3200 The Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
(215) 575-7000

     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of the registration statement.

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o                            

     If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o                            

     If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:    o

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(A) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(A), may determine.

EXPLANATORY NOTE

      This amendment is being filed solely to file Exhibits 8.1, 8.2, 23.5 and 99.4 to this Registration Statement on Form S-4 as set forth below in Item 21 of Part II.

PART II:

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20. Indemnification of Directors and Officers

      Section 145 of the Delaware General Corporation Law authorizes a corporation to indemnify any director, officer, employee or other agent of the corporation.

      The Registrant’s By-laws provide indemnity to the Registrant’s directors and officers in such capacity or as directors or officers of a wholly-owned subsidiary of the Registrant for liability resulting from judgments, fines, expenses or settlement amounts actually and reasonably incurred in connection with any action brought against such person in such capacity to the fullest extent and in the manner set forth in and permitted by the Delaware General Corporation Law, and any other applicable law, as from time to time in effect. Under Delaware law and the By-laws, no indemnification may be provided for any person with respect to any matter as to which he or she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Registrant or of such subsidiary.

      In addition, as permitted under Delaware law, the Registrant maintains liability insurance covering directors and officers of the Registrant and its subsidiaries.

Item 21. Exhibits and Financial Statement Schedules

(a)  The following exhibits are filed as part of this Registration Statement:

Exhibit
Number		Description of Exhibit
	2.1	Amended and Restated Agreement and Plan of Merger, dated as of June 7, 2003, by and between the Registrant and Grange National Banc Corp.(1)
	3.1	Certificate of Incorporation, as amended, of the Registrant(2)
	3.2	Bylaws, as amended, of the Registrant(2)
	5.1	Opinion of Bond, Schoeneck & King, PLLC as to the validity of the securities being registered*
	8.1	Opinion of PricewaterhouseCoopers LLP as to tax matters
	8.2	Opinion of Dilworth Paxson LLP as to tax matters
	10.1	Form of Voting Agreement by and between the Registrant and the directors and executive officers of Grange National Banc Corp.(3)
	10.2	Form of Employment Agreement by and among the Registrant, Community Bank, N.A. and Thomas A. McCullough(4)
	23.1	Consent of PricewaterhouseCoopers LLP*
	23.2	Consent of Kronick Kalada Berdy & Co.*
	23.3	Consent of Bond, Schoeneck & King, PLLC (included in Exhibit 5.1)*
	23.4	Consent of PricewaterhouseCoopers LLP (included in Exhibit 8.1)
	23.5	Consent of Sandler O’Neill & Partners, L.P.
	24.1	Power of Attorney (included in signature page)*
	99.1	Form of proxy card for the special meeting of the shareholders of Grange National Banc Corp.*
	99.2	Consent of Brian R. Ace pursuant to Rule 438 promulgated under the Securities Act*
	99.3	Consent of Sally A. Steele pursuant to Rule 438 promulgated under the Securities Act*
	99.4	Fairness opinion of Sandler O’Neill & Partners, L.P.

  *  Previously Filed.

(1)  Attached as Annex A to the proxy statement/ prospectus included in this Registration Statement on Form S-4.

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(2)	Incorporated by reference to the exhibit with the same exhibit number filed with the Registration Statement on Form S-4 (Registration No. 333-48374) filed by the Registrant on October 20, 2000.
(3)	Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by the Registrant on June 17, 2003.
(4)	Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Grange National Banc Corp. (File No. 0-13664) on June 19, 2003.

      (b) Not applicable.

      (c) A fairness opinion of Sandler O’Neill is attached as Annex B to the proxy statement/ prospectus included in this Registration Statement on Form S-4.

Item 22. Undertakings

      The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

      Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

      The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

      The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved herein, that was not the subject of and included in the registration statement when it became effective.

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SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement or amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in DeWitt, New York on this 11th day of September, 2003.

COMMUNITY BANK SYSTEM, INC.

By:  /s/ SANFORD A. BELDEN

Name: Sanford A. Belden

Title:  President and Chief Executive Officer

      Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.

Signature	Title	Date
/s/ SANFORD A. BELDEN Sanford A. Belden	Director, President and Chief Executive Officer (Principal Executive Officer)	September 11, 2003
* Mark E. Tryniski	Treasurer and Chief Financial Officer (Principal Financial Officer)	September 11, 2003
* Charles M. Ertel	Assistant Treasurer (Principal Accounting Officer)	September 11, 2003
* John M. Burgess	Director	September 11, 2003
* Paul M. Cantwell, Jr.	Director	September 11, 2003
* William M. Dempsey	Director	September 11, 2003
Nicholas A. DiCerbo	Director
* James A. Gabriel	Director	September 11, 2003
* Lee T. Hirschey	Director	September 11, 2003

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Signature	Title	Date
* Harold Kaplan	Director	September 11, 2003
* Saul Kaplan	Director	September 11, 2003
* David C. Patterson	Director	September 11, 2003
* Peter A. Sabia	Director	September 11, 2003
* William N. Sloan	Director	September 11, 2003

*By:  /s/ SANFORD A. BELDEN

Sanford A. Belden

Attorney-in-fact

II-4 EX-8.1 3 y89298a1exv8w1.txt OPINION RE TAX MATTERS EXHIBIT 8.1 ----------- [PricewaterhouseCoopers, LLP Letterhead] September 10, 2003 Mr. Sanford Belden Community Bank System, Inc. 5790 Widewaters Parkway DeWitt, New York 13214-1850 Dear Mr. Belden: You have requested our opinion regarding certain Federal income tax consequences of a merger involving Grange National Banc Corporation ("Target"), and Community Bank System, Inc. ("Acquiring"), pursuant to an Amended and Restated Agreement and Plan of Merger (the "Agreement") dated , June 7, 2003, by and between Target and Acquiring. In connection with the rendering of this opinion, we have reviewed (1) the Proxy Statement/Prospectus filed with the Securities and Exchange Commission on August 13, 2003 by Acquiring (the "Proxy Statement"), (2) the Registration Statement on Form S-4 filed with the Securities and Exchange Commission on August 13, 2003 by Acquiring (the "Registration Statement"), and (3) the Agreement. In addition, we have relied upon representations made by Acquiring and Target in their representation letters dated September 10, 2003 and September 8, 2003 respectively (the "Representations"). We have not independently verified the accuracy or completeness of such information. Capitalized terms not otherwise defined in this letter shall have the meaning set out in the Registration Statement or the Agreement. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the prospectus forming a part of the Registration Statement. In giving such consent we do not thereby concede that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. Unless otherwise indicated, all section ("Section" or "ss.") references are to the Internal Revenue Code of 1986, as amended (the "Code" or "I.R.C."), and the regulations promulgated thereunder (the "Regulations" or "Treas. Reg."). All references to the "IRS" and the "Service" are to the Internal Revenue Service. BACKGROUND Acquiring is a publicly held bank holding company that was organized in Delaware in April 1983. Community Bank, N.A. ("Community Bank") is a national banking association that is wholly owned by Acquiring. As of the date of the Agreement, the authorized capital stock of Acquiring consists of 500,000 shares of preferred stock, par value $1.00 per share, none of which was issued and outstanding; and Community Bank System, Inc. September 10, 2003 Page 2 of 10 20,000,000 shares of common stock, no par value, of which 13,037,391 shares were issued and outstanding and no shares were held in Treasury. All outstanding common stock is publicly traded. Target is a financial holding company organized in Pennsylvania and engaged in an ongoing business. Grange National Bank ("GNB") is a national banking association and the principal banking subsidiary of Target. As of the date of the Agreement, the authorized capital stock of Target consists of 1,000,000 shares of preferred stock, par value $5.00 per share, of which no shares were issued and outstanding; and 5,000,000 shares of common stock, of which 1,635,985 shares were issued and outstanding and 82,754 shares were held in Treasury. An aggregate of 244,042 shares of Target common stock are reserved for existing and future grants under the Stock Option Plans, pursuant to which options to purchase a total of 192,620 shares of common stock are issued and outstanding on the date of the Agreement (of which options to purchase an aggregate of 186,606 shares are currently exercisable). Except for such options, there are no outstanding options, warrants, commitments or any similar rights in existence for the purchase of, or which encumber in any way, Target's common stock. All of Target's outstanding common stock is traded in the over-the-counter market. PROPOSED REORGANIZATION For what are represented to be valid business reasons as set forth in the Proxy Statement, Acquiring proposes to acquire Target in a transaction described in the Agreement summarized below. 1 Target will merge with and into Acquiring, with Acquiring being the surviving entity, in accordance with the terms of the Agreement, (which constitutes a plan of reorganization), and the laws of the states of Delaware and Pennsylvania (the "Merger"). 2. Pursuant to the Merger, the separate corporate existence of Target will cease. Acquiring will acquire substantially all of the assets and will assume all of the liabilities of Target. 3. On the Effective Date of the Merger, the nondissenting shareholders of Target will be entitled to receive either (i) common shares of Acquiring based upon the Exchange Ratio determined in the Agreement ("All Stock Election"); (ii) cash, at the rate of $42.50 for each share of Target stock ("All Cash Election"); or (iii) common shares of Acquiring equal to 70% and cash equal to 30% of the aggregate number of Target shares held by a shareholder ("Mixed Election"). 4. If holders of more than 45% of Target shares elect to receive cash pursuant to the All Cash Election or the Mixed Election or dissent to the Merger, the number of shares otherwise entitled to cash consideration pursuant to the All Cash Election will be reduced pro rata and added to the number of shares entitled to stock consideration so that aggregate cash consideration does not exceed 45% of the entire merger consideration. 5. If holders of fewer than 30% of Target shares elect to receive cash, the number of shares otherwise entitled to all stock consideration would be reduced pro rata and added to the Community Bank System, Inc. September 10, 2003 Page 3 of 10 number of shares entitled to the all cash consideration so that the aggregate cash consideration is at least 30% of the entire merger consideration. 6. Dissenting shareholders of Target who perfect their rights will be entitled to receive cash from Acquiring equal to the fair market value of their shares of Target. 7. Subsequent to the Merger, GNB, which will have become a wholly owned subsidiary of Acquiring, will merge into Community Bank under the National Bank Act, with Community Bank continuing as the surviving bank. REPRESENTATIONS The following additional representations have been made in connection with the proposed transaction: 1. The fair market value of the Acquiring common stock, cash, or combination thereof received by each shareholder of Target will be approximately equal to the fair market value of the Target common stock surrendered in the exchange. The formulas set forth in the Agreement for the exchange of Acquiring shares for Target stock, and the other terms of the Agreement, are the results of arm's-length bargaining. 2. The Merger will qualify as a statutory merger under Delaware and Pennsylvania State law. 3. Acquiring has no plan or intention to reacquire any of its stock issued in the Merger. 4. The liabilities of Target to be assumed by Acquiring and the liabilities, if any, to which the transferred assets of Target are subject, were incurred by Target in the ordinary course of its business. 5. The Merger is being undertaken for valid non-tax business reasons, including to allow Acquiring to establish a presence in Pennsylvania and to expand and diversify its market areas and customer base outside of New York State and to afford Target the advantages of a combination with a larger financial institution. 6. Following the Merger, Acquiring will continue the historic business of Target or use a significant portion of Target's historical business assets in a business. Community Bank System, Inc. September 10, 2003 Page 4 of 10 7. Acquiring has no plan or intention to sell or otherwise dispose of any of the assets of Target acquired in the transaction, except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code. 8. Acquiring, Target and the shareholders of Target will each pay their respective expenses in connection with the Merger. 9. There is no intercorporate indebtedness existing between Acquiring and Target that was issued, acquired, or will be settled at a discount. 10. No two parties to the transaction are investment companies within the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code. 11. Target is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 12. The fair market value of the assets of Target transferred to Acquiring in pursuance of the Merger equals or exceeds the sum of (a) the liabilities assumed by Acquiring, plus (b) the amount of liabilities, if any, to which the transferred assets are subject. 13. Under the terms of the Agreement, at least 50 percent of the fair market value of the total consideration issued to Target shareholders will consist of Acquiring stock. OPINIONS On the basis of the facts and representations set forth above, it is our opinion that: 1. The merger of Target with and into Acquiring will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code; Target and Acquiring will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code. 2. No gain or loss will be recognized by Target shareholders who receive solely shares of Acquiring common stock in exchange for their shares of Target common stock (Section 354(a)(1)). 3. To the extent Target shareholders receive common stock and cash in exchange for their shares of Target common stock, gain, if any, ,but not loss, will be recognized but not in Community Bank System, Inc. September 10, 2003 Page 5 of 10 excess of the cash received (Section 356(a)(1)). If the exchange has the effect of the distribution of a dividend (determined with the application of Section 318), then the amount of gain recognized that is not in excess of the ratable share of undistributed earnings and profits will be treated as a dividend (Section 356(a)(2)). 4. To the extent Target shareholders receive solely cash in exchange for their shares of Target common stock and as a result hold no Acquiring stock following the Merger (either directly or through the application of Section 318), they be will be treated as having a complete termination of interest in Target. The cash received by such shareholders will be treated as a distribution in full payment in exchange for Target stock (Section 302(b)(3)). As provided in Section 1001, gain will be realized and recognized by such shareholders to the extent of the difference between the redemption price and the adjusted basis of the Target stock surrendered. 5. No gain or loss will be recognized by Target as a result of the Merger (Section 361(a)). 6. No gain or loss will be recognized to Acquiring upon the Merger (Section 1032(a)). 7. The aggregate tax basis for Acquiring shares received by each Target shareholder in the transaction will be the same as the aggregate tax basis of the Target shares held by each such Target shareholder immediately prior to the Merger, decreased by the amount of cash received by the shareholder and increased by the amount of gain recognized by the shareholder on the exchange (Section 358(a)(1)). 8. The holding period of Acquiring shares received by each Target shareholder in the transaction will include the period during which the Target shares surrendered in exchange therefore were held (provided such Target shares were held as capital assets on the Effective Date) (Section 1223(1)). 9. The tax basis of the assets of Target acquired by Acquiring will be the same as the tax basis of such assets in the hands of Target immediately prior to the Merger (Section 362(b)). 10. The holding period of the assets of Target in the hands of Acquiring will include the period during which those assets were held by Target (Section 1223(2)). 11. Acquiring will succeed to and take into account the items of Target described in Section 381(a)(2) of the Code, including the earnings and profits (or deficit in earnings and profits), of Target as of the date of the transaction. Acquiring will take those items into account subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and applicable Treasury Regulations. DISCUSSION TAX -FREE REORGANIZATION Community Bank System, Inc. September 10, 2003 Page 6 of 10 A transaction will qualify as a tax-free reorganization under Section 368(a) if it satisfies the statutory requirements of a subsection of Section 368(a), as well as certain non-statutory requirements. Below, we discuss each of the requirements. TYPE "A" REORGANIZATION STATUTORY REQUIREMENTS Section 368(a)(1)(A) defines a tax-free "A" reorganization as a "statutory merger or consolidation." The Regulations provide that to qualify as an "A" reorganization, a merger must be effected pursuant to the laws of the United States or a State or the District of Columbia.1 In addition, as a result of the merger, (i) all of the assets and liabilities of one "combining entity" must become assets and liabilities of another combining entity, and (ii) and the transferor entity must cease its separate legal existence.2 For this purpose, a combining entity includes a domestic corporation, so that Acquiring and Target both constitute combining entities. It has been represented to us that the Merger will qualify as a statutory merger under the national banking laws and of the State of Delaware. As a result of the Merger, Target will cease its legal existence and all of its assets and liabilities will be transferred to Acquiring. Therefore, the merger will meet the statutory requirements of Section 368(a)(1)(A). NON-STATUTORY REQUIREMENTS In addition to the statutory requirements specified in the Code and Regulations, several additional requirements must also be satisfied in order for a transaction to be a tax-free reorganization under Section 368(a).3 These principles, including business purpose, continuity of shareholder interest and continuity of business enterprise, have generally been incorporated in the Regulations. A. BUSINESS PURPOSE ----------------- To qualify as a tax-free reorganization, a transaction must have a valid corporate business purpose.4 The courts have established that a transaction should not be given effect for tax purposes unless it - -------------------------- 1 Treas. Reg.ss.1.368-2T(b)(1)(ii). 2 Treas. Reg.ss.1.368-2T(b)(1)(ii). The regulations define a combining entity as a corporation that is not a disregarded entity for federal tax purposes. Treas. Reg.ss.1.368-2T(b)(1)(i)(B). 3 Treas. Reg.ss.1.368-1(b). 4 Treas. Reg.ss.1.368-2(g) states that, to qualify as a tax-free reorganization, a transaction must be undertaken for reasons germane to the continuance of the business of a corporation that is a party to the reorganization. Community Bank System, Inc. September 10, 2003 Page 7 of 10 serves a purpose other than federal income tax avoidance. 5 It has been represented to us that the Merger is intended to accomplish a bona fide business purpose in that it will to allow Acquiring to establish a presence in Pennsylvania and to expand and diversify its market areas and customer base outside of New York state and provide Target the advantages of a combination with a larger financial institution. Hence, the business purpose requirement is satisfied. B. CONTINUITY OF SHAREHOLDER INTEREST ---------------------------------- To qualify as a tax-free reorganization, a transaction must also satisfy the continuity of shareholder interest requirement ("COI").6 COI generally requires that a substantial part of the value of the proprietary interests in the target corporation be preserved through a continued proprietary interest in the acquiring corporation.7 IN JOHN A. NELSON CO. V. HELVERING, the Supreme Court found that target shareholders retained adequate continuity when they received 38% nonvoting preferred stock and 62% cash.8 The Service has issued guidance stating that for purposes of issuing letter rulings, the continuity test will be met where the target shareholders, as a group, exchange at least 50% by value of the total outstanding target stock immediately prior to the reorganization for stock of the acquiring corporation.9 10 See, for example, John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935) (founding adequate continuity when target shareholders received 38% nonvoting preferred stock and 62% cash); see also Miller v. Commissioner, 84 F.2d 415 (6th Cir. 1936) (25% continuity was found sufficient).Under the Agreement, the maximum aggregate number of Target shares that may be exchanged for cash is 45%. Depending on the share price of Acquiring on the Effective Date, the share exchange ratio pursuant to which Target shares are exchanged for Acquiring shares varies according to the formula established in the Agreement. It has been represented to us that the value of the stock consideration will be above 50% of the total value of the merger consideration. Therefore, the continuity of interest requirement will be satisfied. C. PLAN OF REORGANIZATION ---------------------- - -------------------------------------------------- 5 GREGORY V. HELVERING, 293 US 465 (1935). 6 Treas. Reg.ss.1.368-1(e)(1)(i). SEE ALSO CORTLAND SPECIALTY CO. V. COMMISSIONER, 60 F.2d 937 (2nd Cir. 1932), cert. denied, 288 U.S. 599 (1933). 7 Treas. Reg.ss. 1.368-1(e)(1)(i). A proprietary interest will be preserved in a reorganization if (1) such proprietary interest is exchanged for a proprietary interest in the acquiring corporation, (2) it is exchanged by the acquiring corporation for a direct interest in the target corporation, or (3) it otherwise continues as a proprietary interest in the target. 8 296 U.S. 374 (1935). 9 SEE Rev. Proc. 77-37, 1977-2 C.B. 568. 10 SEE, FOR EXAMPLE, JOHN A. NELSON CO. V. HELVERING, 296 U.S. 374 (1935) (founding adequate continuity when target shareholders received 38% nonvoting preferred stock and 62% cash); SEE ALSO MILLER V. COMMISSIONER, 84 F.2d 415 (6th Cir. 1936) (25% continuity was found sufficient). Community Bank System, Inc. September 10, 2003 Page 8 of 10 A fundamental aspect of the corporate reorganization concept is a "plan of reorganization." A plan of reorganization is explicitly required by Sections 354 and 361, which grant tax-free treatment to exchanges only if they are made "in pursuance of the plan of reorganization." A plan of reorganization must be adopted by each of the corporations that are parties to the reorganization and the adoption must be shown by the acts of their officers and appear on the official records of the corporations.11 The Agreement has been executed by officers of Acquiring and Target, and it sets forth all of the terms of the Merger, and thus, constitutes a valid plan of reorganization. Hence, the plan of reorganization requirement is satisfied. D. CONTINUITY OF BUSINESS ENTERPRISE --------------------------------- A transaction constitutes a tax-free reorganization only if there is a continuity of the business enterprise ("COBE"). 12 Continuity of the business enterprise is preserved if the acquiring corporation, either: (1) continues the target corporation's historic business; or (2) uses a significant portion of the target corporation's historic business assets in a business. In determining whether a line of business or a portion of the target's historic business assets is significant, all relevant facts and circumstances are considered.13 It has been represented to us that Acquiring will continue the historic business of Target and has no plan or intention to sell or dispose of assets other than in the ordinary course of business. As a result, the continuity of business enterprise requirement will be satisfied. TAXATION OF CASH PAYMENTS Shareholders of Target that do not accept the All Stock Election may be entitled to receive cash consideration under either the All Cash Election or the Mixed Election. The federal income tax treatment of shareholders receiving only cash is governed by section 302 of the Code. Under that provision, a redemption of stock for cash or property is either treated as an exchange (giving rise to capital gain or loss provided the stock is held as a capital asset) or as a dividend, depending on whether the redemption meets certain statutory tests. Under Section 302(b)(3), a - ----------------------------------- 11 Treas. Reg.ss.1.368-3(a). 12 Treas. Reg.ss.1.368-1(d). 13 Treas. Reg.ss.1.368-1(d)(1). Community Bank System, Inc. September 10, 2003 Page 9 of 10 redemption is treated as an exchange, rather than a dividend, when the redemption completely terminates the shareholder's interest in the corporation. In determining whether the shareholder has completely terminated its interest in the corporation, Section 302(c) specifies that the redeeming shareholder will be treated as owning stock held by certain related parties under Section 318. Shareholders that receive the Mixed Election may be subject to either dividend treatment or capital gains treatment, depending on whether their holding (taking into account stock that is attributed to them under Section 318) is reduced sufficiently that they are considered to have a "substantially disproportionate redemption." When a similar situation was presented to the Supreme Court in COMMISSIONER V. CLARK,14 it was held that the payment received by the shareholder should be treated as if it were made by the acquiring corporation in a hypothetical section 302 redemption, as if there had been a stock distribution followed by a redemption of the shareholders interest. In Revenue Ruling 93-61,15 the IRS indicated that it would adopt this approach. This determination is necessarily made on the basis of specific facts and circumstances on a shareholder-by-shareholder basis, and therefore, no generalization can be made as to the result to the Target shareholders as a group. CAVEATS AND LIMITATIONS The conclusions reached in this opinion represent and are based upon our best judgment regarding the application of federal income tax laws arising under the Internal Revenue Code, judicial decisions, administrative regulations, published rulings and other tax authorities existing as of the date of this opinion. This opinion is not binding upon the Internal Revenue Service or the courts and there is no guarantee that the Internal Revenue Service will not successfully assert a contrary position. Furthermore, no assurance can be given that future legislative or administrative changes, on either a prospective or retroactive basis, would not adversely affect the accuracy of the conclusions stated herein. PricewaterhouseCoopers LLP undertakes no responsibility to advise any party or shareholder of any new developments in the application or interpretation of the federal income tax laws. This opinion does not address any federal tax consequences of the transactions set forth herein, or transactions related or proximate to such transactions, except as specifically set forth herein. This opinion does not address any state, local, foreign, or other tax consequences that may result from any of the transactions set forth herein, or transactions related to such transactions. This opinion may not be relied upon by any other party to this transaction or in any other transaction without our prior written consent. - ----------------------------- 14 489 U.S. 726 (1989) 15 I.R.B. 1993-30,10, (Sep. 09, 1993) 16 489 U.S. 726 (1989) 17 I.R.B. 1993-30,10, (Sep. 09, 1993) Community Bank System, Inc. September 10, 2003 Page 10 of 10 This opinion is based upon the representations, documents, facts, and assumptions that have been included or referenced herein and the assumption that such information is accurate, true, and authentic. This opinion does not address any transactions other than those described herein. This opinion does not address any transactions whatsoever if all the transactions described herein are not consummated as described herein without waiver or breach of any material provision thereof or if the assumptions set forth herein are not true and accurate at all relevant times. In the event any one of the facts or assumptions is incorrect, in whole or in part, the conclusions reached in this opinion might be adversely affected. Very truly yours, /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP EX-8.2 4 y89298a1exv8w2.txt OPINION RE TAX MATTERS Exhibit 8.2 ----------- [Dilworth Paxson LLP Letterhead] September 9, 2003 Board of Directors Grange National Banc Corp. 198 E. Tioga Street Tunkhannock, PA 18657 Re: Amended and Restated Agreement and Plan of Merger by and between Grange National Banc Corp. ("Target") and Community Bank System, Inc. ("Parent") Dear Board of Directors: We have acted as counsel to Target, a Pennsylvania corporation, in connection with the proposed merger (the "Merger") of Target with and into Parent, a Delaware corporation, pursuant to the terms of the Amended and Restated Agreement and Plan of Merger dated as of June 7, 2003 (the "Merger Agreement") between Parent and Target. You have requested our opinion regarding whether the Merger will qualify as a reorganization for federal income tax purposes within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and as to certain other consequences of the Merger. All capitalized terms, unless otherwise specified, have the meaning assigned to them in the Merger Agreement. In connection with this opinion, we have examined and are familiar with originals or copies, certified or otherwise identified to our satisfaction, of the Merger Agreement, the information statement to be distributed to Target's shareholders, and such other documents as we have deemed necessary or appropriate in order to enable us to render the opinion below. In rendering this opinion, we have relied upon the facts, statements, and representations set forth in the Merger Agreement and other documents and certain written representations and covenants of Parent and Target, which are annexed hereto. In connection with rendering this opinion, we have assumed that: 1. Any representation or statement referred to above made "to the knowledge of," "to the best of the knowledge" or otherwise similarly qualified is correct without such qualification. As to all matters in which a person or entity making a representation referred to above has represented that such person or entity either is not a party to, does not have, or is not aware of, any plan, intention, understanding or agreement, there is in fact no such plan, intention, understanding or agreement. 2. All statements, descriptions and representations contained in any of the documents referred to herein or otherwise made to us are true and correct in all material respects and will continue to be true and correct in all material respects as of the Effective Time and all other relevant times, and no actions have been (or will be) taken which are inconsistent with such representations. 3. Each of Parent and the Target will comply with all reporting obligations with respect to the Merger required by the Code and the Treasury Regulations thereunder and will report the Merger on their respective federal income tax returns in a manner consistent with the opinion set forth below. 4. A tax opinion, substantially identical in substance to this opinion, has been delivered to Parent by PriceWaterhouseCoopers LLP, and will not be withdrawn prior to the Effective Time. 5. The Agreement and all related documents and instruments are valid and binding in accordance with their terms. Based upon and subject to the foregoing, we are of the opinion, for federal income tax purposes only, that: (a) The Merger will, under current law, constitute a reorganization under Section 368(a)(1)(A) of the Code; (b) Parent and Target will each be a party to such reorganization within the meaning of Section 368(b) of the Code; (c) No gain or loss will be recognized by Parent or Target as a result of the Merger (except for amounts resulting from any required change in accounting methods, or any income and deferred gain recognized pursuant to Treasury regulations issued under Section 1502 of the Code); (d) No gain or loss will be recognized by Target shareholders who receive only shares of Parent Common Stock in exchange for their shares of Target Common Stock, except that gain or loss will be recognized on receipt of cash, if any, in lieu of fractual shares; (e) Gain, but not loss, will be recognized by Target shareholders on the exchange of Target Common Stock for Parent Common Stock and cash in an amount equal to the lesser of the Target shareholder's gain realized with respect to such exchange or the amount of cash received;1 (f) Each Target shareholder's aggregate tax basis in any shares of Parent Common Stock received in the transaction will be the same as the aggregate tax basis of the shares of Target Common Stock such shareholder surrendered in the Merger, decreased by the amount of any cash received and any tax basis allocable to the cash received for fractional shares of Parent Common Stock, and increased by the amount of gain recognized by the Target shareholder with respect to cash received; and - -------- 1 In the event that the exchange has the effect of the distribution of a dividend (determined with the application of Section 318 of the Code), then the amount of gain recognized that is not in excess of the ratable share of undistributed earnings and profits will be treated as an ordinary dividend. 2 (g) Each Target shareholder's holding period in any shares of Parent Common Stock received in the transaction will, in each instance, include the period during which the shares of Target Common Stock surrendered in exchange therefor were held, provided that such shares of Target Common Stock were held as capital assets by the shareholder at the Effective Time. The opinions expressed above in paragraphs (d) through (g) may not be entirely applicable or may be incomplete for those Target shareholders with special circumstances, such as o dealers in securities; o insurance companies or tax-exempt organizations; o those subject to alternative minimum tax; those holding their shares as part of a hedge, straddle or other risk reduction transaction; o foreign persons; and o those who acquired their Target Common Stock through stock options or otherwise as compensation. This opinion represents and is based upon our best judgment regarding the application of federal income tax laws arising under the Code, existing judicial decisions, administrative regulations and published rulings and procedures in existence as of this date. Our opinion is not binding on the Internal Revenue Service or the courts. Except as set forth above, we express no opinion as to the tax consequences to any party, whether federal, state, local or foreign, of the Merger or of any transactions related to the Merger or contemplated by the Merger Agreement. This opinion has been delivered to you for the purpose of satisfying the requirements of Section 6.1(f) of the Merger Agreement. It may not be relied upon for any other purpose or by any other person and may not be circulated, quoted or otherwise referred to for any other purpose without our express written consent. We consent to its inclusion as an Exhibit to the Registration Statement on Form S-4. Very truly yours, /s/ Dilworth Paxson LLP Dilworth Paxson LLP 3 EX-23.5 5 y89298a1exv23w5.txt CONSENT OF SANDLER O'NEILL & PARTNERS, L.P. Exhibit 23.5 CONSENT OF SANDLER O'NEILL & PARTNERS, L.P. We hereby consent to the inclusion of our opinion letter, dated the date hereof, to the Board of Directors of Grange National Banc Corp. (the "Company") as an Annex to the Proxy Statement/Prospectus relating to the proposed merger of the Company with and into Community Bank System, Inc. ("CBSI") contained in Amendment No. 1 to CBSI's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on the date hereof, and to the references to our firm and such opinion in such Proxy Statement/Prospectus. In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the "Act"), or the rules and regulations of the Securities and Exchange Commission thereunder (the "Regulations"), nor do we admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "experts" as used in the Act or the Regulations. /s/ Sandler O'Neill & Partners, L.P. September 11, 2003 EX-99.4 6 y89298a1exv99w4.htm FAIRNESS OPINION

Exhibit 99.4

[Sandler O’Neill & Partners, L.P. Letterhead]

September 11, 2003

Board of Directors

Grange National Banc Corp.

198 East Tioga Street

Tunkhannock, Pennsylvania 18657

Ladies and Gentlemen:

      Grange National Banc Corp. (“Grange”) and Community Bank System, Inc. (“CBSI”) have entered into an Agreement and Plan of Merger, as amended and restated as of June 7, 2003 (the “Agreement”), pursuant to which Grange will merge with and into CBSI (the “Merger”). Under the terms of the Agreement, upon consummation of the Merger, each share of Grange common stock, par value $5.00 per share, issued and outstanding immediately prior to the Merger (the “Grange Shares”), other than certain shares specified in the Agreement, will be converted into the right to receive, at the election of the holder thereof, either (a) $42.50 in cash without interest, or (b) a number of shares of CBSI common stock, no par value, as shall be equal to the Exchange Ratio, subject to the election and proration procedures set forth in the Agreement which provide generally, among other things, that no more than 70% of the total number of Grange Shares shall be converted into CBSI common stock and no more than 45% shall be converted into cash (the “Merger Consideration”). The Exchange Ratio shall be 1.209; provided, however, that if the CBSI Market Price (as defined in the Agreement) is (a) less than $29.88, the Exchange Ratio shall be determined by dividing $36.13 by the CBSI Market Price, or (b) greater than $40.43, the Exchange Ratio shall be determined by dividing $48.88 by the CBSI Market Price. The terms and conditions of the Merger are more fully set forth in the Agreement. You have requested our opinion as to the fairness, from a financial point of view, of the Merger Consideration to the holders of Grange Shares.

      Sandler O’Neill & Partners, L.P., as part of its investment banking business, is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. In connection with this opinion, we have reviewed, among other things: (i) the Agreement, together with certain of the exhibits and schedules thereto; (ii) certain publicly available financial statements and other historical financial information of Grange that we deemed relevant; (iii) certain publicly available financial statements and other historical financial information of CBSI that we deemed relevant; (iv) financial projections for Grange for the year ending December 31, 2003 prepared by and reviewed with management of Grange; (v) earnings per share projections for CBSI for the year ending December 31, 2003 provided by management of CBSI and earnings per share estimates for CBSI for the year ending December 31, 2004 published by I/B/E/S; (vi) the pro forma financial impact of the Merger on CBSI, based on assumptions relating to earnings projections, transaction expenses, purchase accounting adjustments and cost savings determined by the senior managements of CBSI and Grange; (vii) the publicly reported historical price and trading activity for Grange’s and CBSI’s common stock, including a comparison of certain financial and stock market information for Grange and CBSI with similar publicly available information for certain other companies the securities of which are publicly traded; (viii) the financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available; (ix) the current market environment generally and the banking environment in particular; and (x) such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant. We also discussed with certain members of senior management of Grange the business, financial condition, results of operations and prospects of Grange and held similar discussions with certain members of senior management of CBSI regarding the business, financial condition, results of operations and prospects of CBSI. In connection with our engagement, we were not asked to, and did not, solicit indications of interest in a potential transaction from other third parties.

Board of Directors

Grange National Banc Corp.

September 11, 2003

Page 2

      In performing our review, we have relied upon the accuracy and completeness of all of the financial and other information that was available to us from public sources, that was provided to us by Grange or CBSI or their respective representatives or that was otherwise reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. We have further relied on the assurances of management of Grange and CBSI that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. We have not been asked to and have not undertaken an independent verification of any of such information and we do not assume any responsibility or liability for the accuracy or completeness thereof. We did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Grange or CBSI or any of their subsidiaries, or the collectibility of any such assets, nor have we been furnished with any such evaluations or appraisals. We did not make an independent evaluation of the adequacy of the allowance for loan losses of Grange or CBSI nor have we reviewed any individual credit files relating to Grange or CBSI. We have assumed, with your consent, that the respective allowances for loan losses for both Grange and CBSI are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity. With respect to the financial projections and estimates for Grange and CBSI and all projections of transaction costs, purchase accounting adjustments and expected cost savings prepared by and/or reviewed with the managements of Grange and CBSI and used by Sandler O’Neill in its analyses, the managements of Grange and CBSI confirmed to Sandler O’Neill that they reflected the best currently available estimates and judgments of the respective managements of the respective future financial performances of Grange and CBSI and we assumed for purposes of our analyses that such performances would be achieved. We express no opinion as to such financial projections or the assumptions on which they are based. We have also assumed that there has been no material change in Grange’s or CBSI’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to us. We have assumed in all respects material to our analysis that Grange and CBSI will remain as going concerns for all periods relevant to our analyses, that all of the representations and warranties contained in the Agreement and all related agreements are true and correct, that each party to the agreements will perform all of the covenants required to be performed by such party under the agreements, that the conditions precedent in the agreements are not waived and that the Merger will qualify as a tax-free reorganization for federal income tax purposes.

      Our opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof could materially affect this opinion. We have not undertaken to update, revise, reaffirm or withdraw this opinion or otherwise comment upon events occurring after the date hereof. We are expressing no opinion herein as to what the value of CBSI’s common stock will be when issued to Grange’s shareholders pursuant to the Agreement or the prices at which Grange’s or CBSI’s common stock may trade at any time.

      We have acted as Grange’s financial advisor in connection with the Merger and will receive a fee for our services, contingent upon consummation of the Merger. We have also received a fee for rendering this opinion. In the past, we have also provided certain other investment banking services to Grange. In the ordinary course of our business as a broker-dealer, we may purchase securities from and sell securities to Grange and CBSI and their affiliates. We may also actively trade the debt or equity securities of Grange and CBSI or their affiliates for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities.

      Our opinion is directed to the Board of Directors of Grange in connection with its consideration of the Merger and does not constitute a recommendation to any shareholder of Grange as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the Merger or the form of consideration such shareholder should elect in the Merger. Our opinion is directed only to the fairness, from a financial point of view, of the Merger Consideration to holders of Grange Shares and does not address the

2

Board of Directors

Grange National Banc Corp.

September 11, 2003

Page 3

underlying business decision of Grange to engage in the Merger, the relative merits of the Merger as compared to any other alternative business strategies that might exist for Grange or the effect of any other transaction in which Grange might engage. Our opinion is not to be quoted or referred to, in whole or in part, in a registration statement, prospectus, proxy statement or in any other document, nor shall this opinion be used for any other purposes, without Sandler O’Neill’s prior written consent; provided, however, that we hereby consent to the inclusion of this opinion as an annex to the Proxy Statement/ Prospectus of Grange and CBSI relating to the Merger and to the references to this opinion therein.

      Based upon and subject to the foregoing, it is our opinion, as of the date hereof, that the Merger Consideration to be received by the holders of Grange Shares is fair to such shareholders from a financial point of view.

Very truly yours,

/s/ Sandler O’Neill & Partners, L.P.

3 -----END PRIVACY-ENHANCED MESSAGE-----

EX-8.1

                                                                    EXHIBIT 8.1
                                                                    -----------

                    [PricewaterhouseCoopers, LLP Letterhead]

September 10, 2003



Mr. Sanford Belden
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214-1850

Dear Mr. Belden:


You have requested our opinion regarding certain Federal income tax consequences
of a merger involving Grange National Banc Corporation ("Target"), and Community
Bank System, Inc. ("Acquiring"), pursuant to an Amended and Restated Agreement
and Plan of Merger (the "Agreement") dated , June 7, 2003, by and between Target
and Acquiring.

In connection with the rendering of this opinion, we have reviewed (1) the Proxy
Statement/Prospectus filed with the Securities and Exchange Commission on August
13, 2003 by Acquiring (the "Proxy Statement"), (2) the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on August 13, 2003 by
Acquiring (the "Registration Statement"), and (3) the Agreement. In addition, we
have relied upon representations made by Acquiring and Target in their
representation letters dated September 10, 2003 and September 8, 2003
respectively (the "Representations"). We have not independently verified the
accuracy or completeness of such information. Capitalized terms not otherwise
defined in this letter shall have the meaning set out in the Registration
Statement or the Agreement.


We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name in the prospectus forming a part of the
Registration Statement. In giving such consent we do not thereby concede that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder.

Unless otherwise indicated, all section ("Section" or "ss.") references are to
the Internal Revenue Code of 1986, as amended (the "Code" or "I.R.C."), and the
regulations promulgated thereunder (the "Regulations" or "Treas. Reg."). All
references to the "IRS" and the "Service" are to the Internal Revenue Service.

                                   BACKGROUND

Acquiring is a publicly held bank holding company that was organized in Delaware
in April 1983. Community Bank, N.A. ("Community Bank") is a national banking
association that is wholly owned by Acquiring.

As of the date of the Agreement, the authorized capital stock of Acquiring
consists of 500,000 shares of preferred stock, par value $1.00 per share, none
of which was issued and outstanding; and


Community Bank System, Inc.
September 10, 2003
Page 2 of 10

20,000,000 shares of common stock, no par value, of which 13,037,391 shares were
issued and outstanding and no shares were held in Treasury. All outstanding
common stock is publicly traded.

Target is a financial holding company organized in Pennsylvania and engaged in
an ongoing business. Grange National Bank ("GNB") is a national banking
association and the principal banking subsidiary of Target.

As of the date of the Agreement, the authorized capital stock of Target consists
of 1,000,000 shares of preferred stock, par value $5.00 per share, of which no
shares were issued and outstanding; and 5,000,000 shares of common stock, of
which 1,635,985 shares were issued and outstanding and 82,754 shares were held
in Treasury. An aggregate of 244,042 shares of Target common stock are reserved
for existing and future grants under the Stock Option Plans, pursuant to which
options to purchase a total of 192,620 shares of common stock are issued and
outstanding on the date of the Agreement (of which options to purchase an
aggregate of 186,606 shares are currently exercisable). Except for such options,
there are no outstanding options, warrants, commitments or any similar rights in
existence for the purchase of, or which encumber in any way, Target's common
stock. All of Target's outstanding common stock is traded in the
over-the-counter market.

                             PROPOSED REORGANIZATION

For what are represented to be valid business reasons as set forth in the Proxy
Statement, Acquiring proposes to acquire Target in a transaction described in
the Agreement summarized below.


1    Target will merge with and into Acquiring, with Acquiring being the
     surviving entity, in accordance with the terms of the Agreement, (which
     constitutes a plan of reorganization), and the laws of the states of
     Delaware and Pennsylvania (the "Merger").


2.   Pursuant to the Merger, the separate corporate existence of Target will
     cease. Acquiring will acquire substantially all of the assets and will
     assume all of the liabilities of Target.


3.   On the Effective Date of the Merger, the nondissenting shareholders of
     Target will be entitled to receive either (i) common shares of Acquiring
     based upon the Exchange Ratio determined in the Agreement ("All Stock
     Election"); (ii) cash, at the rate of $42.50 for each share of Target stock
     ("All Cash Election"); or (iii) common shares of Acquiring equal to 70% and
     cash equal to 30% of the aggregate number of Target shares held by a
     shareholder ("Mixed Election").

4.   If holders of more than 45% of Target shares elect to receive cash pursuant
     to the All Cash Election or the Mixed Election or dissent to the Merger,
     the number of shares otherwise entitled to cash consideration pursuant to
     the All Cash Election will be reduced pro rata and added to the number of
     shares entitled to stock consideration so that aggregate cash consideration
     does not exceed 45% of the entire merger consideration.


5.   If holders of fewer than 30% of Target shares elect to receive cash, the
     number of shares otherwise entitled to all stock consideration would be
     reduced pro rata and added to the


Community Bank System, Inc.
September 10, 2003
Page 3 of 10


     number of shares entitled to the all cash consideration so that the
     aggregate cash consideration is at least 30% of the entire merger
     consideration.

6.   Dissenting shareholders of Target who perfect their rights will be entitled
     to receive cash from Acquiring equal to the fair market value of their
     shares of Target.

7.   Subsequent to the Merger, GNB, which will have become a wholly owned
     subsidiary of Acquiring, will merge into Community Bank under the National
     Bank Act, with Community Bank continuing as the surviving bank.

                                 REPRESENTATIONS


The following additional representations have been made in connection with the
proposed transaction:


1.   The fair market value of the Acquiring common stock, cash, or combination
     thereof received by each shareholder of Target will be approximately equal
     to the fair market value of the Target common stock surrendered in the
     exchange. The formulas set forth in the Agreement for the exchange of
     Acquiring shares for Target stock, and the other terms of the Agreement,
     are the results of arm's-length bargaining.

2.   The Merger will qualify as a statutory merger under Delaware and
     Pennsylvania State law.

3.   Acquiring has no plan or intention to reacquire any of its stock issued in
     the Merger.

4.   The liabilities of Target to be assumed by Acquiring and the liabilities,
     if any, to which the transferred assets of Target are subject, were
     incurred by Target in the ordinary course of its business.


5.   The Merger is being undertaken for valid non-tax business reasons,
     including to allow Acquiring to establish a presence in Pennsylvania and to
     expand and diversify its market areas and customer base outside of New York
     State and to afford Target the advantages of a combination with a larger
     financial institution.

6.   Following the Merger, Acquiring will continue the historic business of
     Target or use a significant portion of Target's historical business assets
     in a business.


Community Bank System, Inc.
September 10, 2003
Page 4 of 10

7.   Acquiring has no plan or intention to sell or otherwise dispose of any of
     the assets of Target acquired in the transaction, except for dispositions
     made in the ordinary course of business or transfers described in Section
     368(a)(2)(C) of the Code.


8.   Acquiring, Target and the shareholders of Target will each pay their
     respective expenses in connection with the Merger.

9.   There is no intercorporate indebtedness existing between Acquiring and
     Target that was issued, acquired, or will be settled at a discount.

10.  No two parties to the transaction are investment companies within the
     meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.

11.  Target is not under the jurisdiction of a court in a Title 11 or similar
     case within the meaning of Section 368(a)(3)(A) of the Code.

12.  The fair market value of the assets of Target transferred to Acquiring in
     pursuance of the Merger equals or exceeds the sum of (a) the liabilities
     assumed by Acquiring, plus (b) the amount of liabilities, if any, to which
     the transferred assets are subject.

13.  Under the terms of the Agreement, at least 50 percent of the fair market
     value of the total consideration issued to Target shareholders will consist
     of Acquiring stock.

                                    OPINIONS

On the basis of the facts and representations set forth above, it is our opinion
that:

1.   The merger of Target with and into Acquiring will qualify as a tax-free
     reorganization within the meaning of Section 368(a)(1)(A) of the Code;
     Target and Acquiring will each be a "party to a reorganization" within the
     meaning of Section 368(b) of the Code.

2.   No gain or loss will be recognized by Target shareholders who receive
     solely shares of Acquiring common stock in exchange for their shares of
     Target common stock (Section 354(a)(1)).


3.   To the extent Target shareholders receive common stock and cash in exchange
     for their shares of Target common stock, gain, if any, ,but not loss, will
     be recognized but not in


Community Bank System, Inc.
September 10, 2003
Page 5 of 10


     excess of the cash received (Section 356(a)(1)). If the exchange has the
     effect of the distribution of a dividend (determined with the application
     of Section 318), then the amount of gain recognized that is not in excess
     of the ratable share of undistributed earnings and profits will be treated
     as a dividend (Section 356(a)(2)).

4.   To the extent Target shareholders receive solely cash in exchange for their
     shares of Target common stock and as a result hold no Acquiring stock
     following the Merger (either directly or through the application of Section
     318), they be will be treated as having a complete termination of interest
     in Target. The cash received by such shareholders will be treated as a
     distribution in full payment in exchange for Target stock (Section
     302(b)(3)). As provided in Section 1001, gain will be realized and
     recognized by such shareholders to the extent of the difference between the
     redemption price and the adjusted basis of the Target stock surrendered.


5.   No gain or loss will be recognized by Target as a result of the Merger
     (Section 361(a)).

6.   No gain or loss will be recognized to Acquiring upon the Merger (Section
     1032(a)).

7.   The aggregate tax basis for Acquiring shares received by each Target
     shareholder in the transaction will be the same as the aggregate tax basis
     of the Target shares held by each such Target shareholder immediately prior
     to the Merger, decreased by the amount of cash received by the shareholder
     and increased by the amount of gain recognized by the shareholder on the
     exchange (Section 358(a)(1)).

8.   The holding period of Acquiring shares received by each Target shareholder
     in the transaction will include the period during which the Target shares
     surrendered in exchange therefore were held (provided such Target shares
     were held as capital assets on the Effective Date) (Section 1223(1)).

9.   The tax basis of the assets of Target acquired by Acquiring will be the
     same as the tax basis of such assets in the hands of Target immediately
     prior to the Merger (Section 362(b)).

10.  The holding period of the assets of Target in the hands of Acquiring will
     include the period during which those assets were held by Target (Section
     1223(2)).

11.  Acquiring will succeed to and take into account the items of Target
     described in Section 381(a)(2) of the Code, including the earnings and
     profits (or deficit in earnings and profits), of Target as of the date of
     the transaction. Acquiring will take those items into account subject to
     the conditions and limitations specified in Sections 381, 382, 383 and 384
     of the Code and applicable Treasury Regulations.

                                   DISCUSSION

TAX -FREE REORGANIZATION



Community Bank System, Inc.
September 10, 2003
Page 6 of 10


A transaction will qualify as a tax-free reorganization under Section 368(a) if
it satisfies the statutory requirements of a subsection of Section 368(a), as
well as certain non-statutory requirements. Below, we discuss each of the
requirements.

TYPE "A" REORGANIZATION STATUTORY REQUIREMENTS

Section 368(a)(1)(A) defines a tax-free "A" reorganization as a "statutory
merger or consolidation." The Regulations provide that to qualify as an "A"
reorganization, a merger must be effected pursuant to the laws of the United
States or a State or the District of Columbia.1 In addition, as a result of the
merger, (i) all of the assets and liabilities of one "combining entity" must
become assets and liabilities of another combining entity, and (ii) and the
transferor entity must cease its separate legal existence.2 For this purpose, a
combining entity includes a domestic corporation, so that Acquiring and Target
both constitute combining entities.

It has been represented to us that the Merger will qualify as a statutory merger
under the national banking laws and of the State of Delaware. As a result of the
Merger, Target will cease its legal existence and all of its assets and
liabilities will be transferred to Acquiring. Therefore, the merger will meet
the statutory requirements of Section 368(a)(1)(A).

NON-STATUTORY REQUIREMENTS

In addition to the statutory requirements specified in the Code and Regulations,
several additional requirements must also be satisfied in order for a
transaction to be a tax-free reorganization under Section 368(a).3 These
principles, including business purpose, continuity of shareholder interest and
continuity of business enterprise, have generally been incorporated in the
Regulations.

  A.  BUSINESS PURPOSE
      -----------------

To qualify as a tax-free reorganization, a transaction must have a valid
corporate business purpose.4 The courts have established that a transaction
should not be given effect for tax purposes unless it

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

1 Treas. Reg.ss.1.368-2T(b)(1)(ii).

2 Treas. Reg.ss.1.368-2T(b)(1)(ii). The regulations define a combining entity as
a corporation that is not a disregarded entity for federal tax purposes. Treas.
Reg.ss.1.368-2T(b)(1)(i)(B).

3 Treas. Reg.ss.1.368-1(b).

4 Treas. Reg.ss.1.368-2(g) states that, to qualify as a tax-free reorganization,
a transaction must be undertaken for reasons germane to the continuance of the
business of a corporation that is a party to the reorganization.

Community Bank System, Inc.
September 10, 2003
Page 7 of 10

serves a purpose other than federal income tax avoidance. 5 It has been
represented to us that the Merger is intended to accomplish a bona fide business
purpose in that it will to allow Acquiring to establish a presence in
Pennsylvania and to expand and diversify its market areas and customer base
outside of New York state and provide Target the advantages of a combination
with a larger financial institution. Hence, the business purpose requirement is
satisfied.


     B.   CONTINUITY OF SHAREHOLDER INTEREST
          ----------------------------------

To qualify as a tax-free reorganization, a transaction must also satisfy the
continuity of shareholder interest requirement ("COI").6 COI generally requires
that a substantial part of the value of the proprietary interests in the target
corporation be preserved through a continued proprietary interest in the
acquiring corporation.7


IN JOHN A. NELSON CO. V. HELVERING, the Supreme Court found that target
shareholders retained adequate continuity when they received 38% nonvoting
preferred stock and 62% cash.8 The Service has issued guidance stating that for
purposes of issuing letter rulings, the continuity test will be met where the
target shareholders, as a group, exchange at least 50% by value of the total
outstanding target stock immediately prior to the reorganization for stock of
the acquiring corporation.9 10 See, for example, John A. Nelson Co. v.
Helvering, 296 U.S. 374 (1935) (founding adequate continuity when target
shareholders received 38% nonvoting preferred stock and 62% cash); see also
Miller v. Commissioner, 84 F.2d 415 (6th Cir. 1936) (25% continuity was found
sufficient).Under the Agreement, the maximum aggregate number of Target shares
that may be exchanged for cash is 45%. Depending on the share price of Acquiring
on the Effective Date, the share exchange ratio pursuant to which Target shares
are exchanged for Acquiring shares varies according to the formula established
in the Agreement. It has been represented to us that the value of the stock
consideration will be above 50% of the total value of the merger consideration.
Therefore, the continuity of interest requirement will be satisfied.


C.       PLAN OF REORGANIZATION
         ----------------------


- --------------------------------------------------
5 GREGORY V. HELVERING, 293 US 465 (1935).

6 Treas. Reg.ss.1.368-1(e)(1)(i). SEE ALSO CORTLAND SPECIALTY CO. V.
COMMISSIONER, 60 F.2d 937 (2nd Cir. 1932), cert. denied, 288 U.S. 599 (1933).

7 Treas. Reg.ss. 1.368-1(e)(1)(i). A proprietary interest will be preserved in a
reorganization if (1) such proprietary interest is exchanged for a proprietary
interest in the acquiring corporation, (2) it is exchanged by the acquiring
corporation for a direct interest in the target corporation, or (3) it otherwise
continues as a proprietary interest in the target.

8 296 U.S. 374 (1935).

9 SEE Rev. Proc. 77-37, 1977-2 C.B. 568.

10 SEE, FOR EXAMPLE, JOHN A. NELSON CO. V. HELVERING, 296 U.S. 374 (1935)
(founding adequate continuity when target shareholders received 38% nonvoting
preferred stock and 62% cash); SEE ALSO MILLER V. COMMISSIONER, 84 F.2d 415 (6th
Cir. 1936) (25% continuity was found sufficient).




Community Bank System, Inc.
September 10, 2003
Page 8 of 10


A fundamental aspect of the corporate reorganization concept is a "plan of
reorganization." A plan of reorganization is explicitly required by Sections 354
and 361, which grant tax-free treatment to exchanges only if they are made "in
pursuance of the plan of reorganization." A plan of reorganization must be
adopted by each of the corporations that are parties to the reorganization and
the adoption must be shown by the acts of their officers and appear on the
official records of the corporations.11 The Agreement has been executed by
officers of Acquiring and Target, and it sets forth all of the terms of the
Merger, and thus, constitutes a valid plan of reorganization. Hence, the plan of
reorganization requirement is satisfied.

D.       CONTINUITY OF BUSINESS ENTERPRISE
         ---------------------------------

A transaction constitutes a tax-free reorganization only if there is a
continuity of the business enterprise ("COBE"). 12 Continuity of the business
enterprise is preserved if the acquiring corporation, either:

         (1) continues the target corporation's historic business; or

         (2) uses a significant portion of the target corporation's historic
business assets in a business.

In determining whether a line of business or a portion of the target's historic
business assets is significant, all relevant facts and circumstances are
considered.13


It has been represented to us that Acquiring will continue the historic business
of Target and has no plan or intention to sell or dispose of assets other than
in the ordinary course of business. As a result, the continuity of business
enterprise requirement will be satisfied.

TAXATION OF CASH PAYMENTS

Shareholders of Target that do not accept the All Stock Election may be entitled
to receive cash consideration under either the All Cash Election or the Mixed
Election.

The federal income tax treatment of shareholders receiving only cash is governed
by section 302 of the Code. Under that provision, a redemption of stock for cash
or property is either treated as an exchange (giving rise to capital gain or
loss provided the stock is held as a capital asset) or as a dividend, depending
on whether the redemption meets certain statutory tests. Under Section
302(b)(3), a

- -----------------------------------
11 Treas. Reg.ss.1.368-3(a).

12 Treas. Reg.ss.1.368-1(d).

13 Treas. Reg.ss.1.368-1(d)(1).


Community Bank System, Inc.
September 10, 2003
Page 9 of 10

 redemption is treated as an exchange, rather than a dividend, when the
redemption completely terminates the shareholder's interest in the corporation.
In determining whether the shareholder has completely terminated its interest in
the corporation, Section 302(c) specifies that the redeeming shareholder will be
treated as owning stock held by certain related parties under Section 318.

Shareholders that receive the Mixed Election may be subject to either dividend
treatment or capital gains treatment, depending on whether their holding (taking
into account stock that is attributed to them under Section 318) is reduced
sufficiently that they are considered to have a "substantially disproportionate
redemption." When a similar situation was presented to the Supreme Court in
COMMISSIONER V. CLARK,14 it was held that the payment received by the
shareholder should be treated as if it were made by the acquiring corporation in
a hypothetical section 302 redemption, as if there had been a stock distribution
followed by a redemption of the shareholders interest. In Revenue Ruling
93-61,15 the IRS indicated that it would adopt this approach. This determination
is necessarily made on the basis of specific facts and circumstances on a
shareholder-by-shareholder basis, and therefore, no generalization can be made
as to the result to the Target shareholders as a group.


                             CAVEATS AND LIMITATIONS

The conclusions reached in this opinion represent and are based upon our best
judgment regarding the application of federal income tax laws arising under the
Internal Revenue Code, judicial decisions, administrative regulations, published
rulings and other tax authorities existing as of the date of this opinion. This
opinion is not binding upon the Internal Revenue Service or the courts and there
is no guarantee that the Internal Revenue Service will not successfully assert a
contrary position. Furthermore, no assurance can be given that future
legislative or administrative changes, on either a prospective or retroactive
basis, would not adversely affect the accuracy of the conclusions stated herein.
PricewaterhouseCoopers LLP undertakes no responsibility to advise any party or
shareholder of any new developments in the application or interpretation of the
federal income tax laws.

This opinion does not address any federal tax consequences of the transactions
set forth herein, or transactions related or proximate to such transactions,
except as specifically set forth herein. This opinion does not address any
state, local, foreign, or other tax consequences that may result from any of the
transactions set forth herein, or transactions related to such transactions.
This opinion may not be relied upon by any other party to this transaction or in
any other transaction without our prior written consent.


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

14 489 U.S. 726 (1989)
15 I.R.B. 1993-30,10, (Sep. 09, 1993)
16 489 U.S. 726 (1989)
17 I.R.B. 1993-30,10, (Sep. 09, 1993)


Community Bank System, Inc.
September 10, 2003
Page 10 of 10

This opinion is based upon the representations, documents, facts, and
assumptions that have been included or referenced herein and the assumption that
such information is accurate, true, and authentic. This opinion does not address
any transactions other than those described herein. This opinion does not
address any transactions whatsoever if all the transactions described herein are
not consummated as described herein without waiver or breach of any material
provision thereof or if the assumptions set forth herein are not true and
accurate at all relevant times. In the event any one of the facts or assumptions
is incorrect, in whole or in part, the conclusions reached in this opinion might
be adversely affected.

Very truly yours,

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

EX-8.2

                                                                  Exhibit 8.2
                                                                  -----------
                        [Dilworth Paxson LLP Letterhead]

                                September 9, 2003


Board of Directors
Grange National Banc Corp.
198 E. Tioga Street
Tunkhannock, PA 18657

                  Re:      Amended and Restated  Agreement and Plan of Merger
                           by and between  Grange  National Banc Corp.
                           ("Target") and Community Bank System, Inc. ("Parent")

Dear Board of Directors:

     We have acted as counsel to Target, a Pennsylvania corporation, in
connection with the proposed merger (the "Merger") of Target with and into
Parent, a Delaware corporation, pursuant to the terms of the Amended and
Restated Agreement and Plan of Merger dated as of June 7, 2003 (the "Merger
Agreement") between Parent and Target. You have requested our opinion regarding
whether the Merger will qualify as a reorganization for federal income tax
purposes within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and as to certain other consequences of the
Merger. All capitalized terms, unless otherwise specified, have the meaning
assigned to them in the Merger Agreement.

     In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Merger Agreement, the information statement to be distributed to Target's
shareholders, and such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below. In rendering this
opinion, we have relied upon the facts, statements, and representations set
forth in the Merger Agreement and other documents and certain written
representations and covenants of Parent and Target, which are annexed hereto.

     In connection with rendering this opinion, we have assumed that:

     1. Any representation or statement referred to above made "to the knowledge
of," "to the best of the knowledge" or otherwise similarly qualified is correct
without such qualification. As to all matters in which a person or entity making
a representation referred to above has represented that such person or entity
either is not a party to, does not have, or is not aware of, any plan,
intention, understanding or agreement, there is in fact no such plan, intention,
understanding or agreement.

     2. All statements, descriptions and representations contained in any of the
documents referred to herein or otherwise made to us are true and correct in all
material respects and will continue to be true and correct in all material
respects as of the Effective Time and all



other relevant times, and no actions have been (or will be) taken which are
inconsistent with such representations.

     3. Each of Parent and the Target will comply with all reporting obligations
with respect to the Merger required by the Code and the Treasury Regulations
thereunder and will report the Merger on their respective federal income tax
returns in a manner consistent with the opinion set forth below.

     4. A tax opinion, substantially identical in substance to this opinion, has
been delivered to Parent by PriceWaterhouseCoopers LLP, and will not be
withdrawn prior to the Effective Time.

     5. The Agreement and all related documents and instruments are valid and
binding in accordance with their terms.

     Based upon and subject to the foregoing, we are of the opinion, for federal
income tax purposes only, that:

        (a) The Merger will, under current law, constitute a reorganization
under Section 368(a)(1)(A) of the Code;

        (b) Parent and Target will each be a party to such reorganization within
the meaning of Section 368(b) of the Code;

        (c) No gain or loss will be recognized by Parent or Target as a result
of the Merger (except for amounts resulting from any required change in
accounting methods, or any income and deferred gain recognized pursuant to
Treasury regulations issued under Section 1502 of the Code);

        (d) No gain or loss will be recognized by Target shareholders who
receive only shares of Parent Common Stock in exchange for their shares of
Target Common Stock, except that gain or loss will be recognized on receipt of
cash, if any, in lieu of fractual shares;

        (e) Gain, but not loss, will be recognized by Target shareholders on the
exchange of Target Common Stock for Parent Common Stock and cash in an amount
equal to the lesser of the Target shareholder's gain realized with respect to
such exchange or the amount of cash received;1

        (f) Each Target shareholder's aggregate tax basis in any shares of
Parent Common Stock received in the transaction will be the same as the
aggregate tax basis of the shares of Target Common Stock such shareholder
surrendered in the Merger, decreased by the amount of any cash received and any
tax basis allocable to the cash received for fractional shares of Parent Common
Stock, and increased by the amount of gain recognized by the Target shareholder
with respect to cash received; and

- --------
1 In the event that the exchange has the effect of the distribution of a
dividend (determined with the application of Section 318 of the Code), then the
amount of gain recognized that is not in excess of the ratable share of
undistributed earnings and profits will be treated as an ordinary dividend.



                                      2




        (g) Each Target shareholder's holding period in any shares of Parent
Common Stock received in the transaction will, in each instance, include the
period during which the shares of Target Common Stock surrendered in exchange
therefor were held, provided that such shares of Target Common Stock were held
as capital assets by the shareholder at the Effective Time.

     The opinions expressed above in paragraphs (d) through (g) may not be
entirely applicable or may be incomplete for those Target shareholders with
special circumstances, such as

     o    dealers in securities;
     o    insurance companies or tax-exempt organizations;
     o    those subject to alternative minimum tax; those holding their
          shares as part of a hedge, straddle or other risk reduction
          transaction;
     o    foreign persons; and
     o    those who acquired their Target Common Stock through stock options or
          otherwise as compensation.

     This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures in
existence as of this date. Our opinion is not binding on the Internal Revenue
Service or the courts.

     Except as set forth above, we express no opinion as to the tax consequences
to any party, whether federal, state, local or foreign, of the Merger or of any
transactions related to the Merger or contemplated by the Merger Agreement. This
opinion has been delivered to you for the purpose of satisfying the requirements
of Section 6.1(f) of the Merger Agreement. It may not be relied upon for any
other purpose or by any other person and may not be circulated, quoted or
otherwise referred to for any other purpose without our express written consent.
We consent to its inclusion as an Exhibit to the Registration Statement on Form
S-4.

                                            Very truly yours,


                                            /s/ Dilworth Paxson LLP

                                            Dilworth Paxson LLP




                                       3

EX-23.5

                                                                    Exhibit 23.5


                  CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.


      We hereby consent to the inclusion of our opinion letter, dated the date
hereof, to the Board of Directors of Grange National Banc Corp. (the "Company")
as an Annex to the Proxy Statement/Prospectus relating to the proposed merger of
the Company with and into Community Bank System, Inc. ("CBSI") contained in
Amendment No. 1 to CBSI's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on the date hereof, and to the references to
our firm and such opinion in such Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission thereunder (the "Regulations"), nor do we admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Act or the Regulations.


                                            /s/ Sandler O'Neill & Partners, L.P.

September 11, 2003

EX-99.4

FAIRNESS OPINION